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MEMORANDUM
TO: SmallButGrowing Board of Directors
FROM: Krysten Garcia, Ryan Hay, Ryo Takigawa
DATE: June 8, 2016
SUBJECT: Freedonia Investment
SITUATION
We, SmallButGrowing Corporation (SBG), have been planning to invest in the mining
industry in Freedonia. Freedonia is an underdeveloped nation located in sub-Saharan Africa and
has recently discovered mineral. However, Freedonia has been isolated from the rest of the
world, so they have no experience in dealing with foreign direct investment or any regulation on
governing investment. Thus, we would face unexpected legal issues if we decided to go into
Freedonia. Although Freedonia has not been very attractive for foreign direct investment,
Freedonia would like to attract foreign direct investment to help its natural resources, such as
minerals they recently discovered. In order to minimize unexpected legal risks in Freedonia, we
had a total of three negotiations with their government to discuss issues and decide whether we
are going into Freedonia. If we decided to invest in Freedonia, the Freedonian government would
like to have a long-term business relationship with us. From the negotiations with Freedonian
government, if we decided to go into Freedonia, we mainly need to consider those legal issues;
1) types of business entity, 2) business deal, such as royalties, labor agreement, and regulations,
3) nomads issues, and 4) expropriation. After negotiating with Freedonian representatives, we
have decided that SBG should go ahead and enter Freedonia.
SUBSIDIARY
SBG would like to do business in Freedonia, but would like to have a presence in
Freedonia by having a subsidiary called SmallButFlourishing (SBF). Mining has high
occupational hazards; therefore it is prone to having a lot of liability. For SBG, we feel that
despite the need for control of operations, it is imperative that we protect the company by having
a subsidiary in Freedonia instead of a branch. We considered having a branch in Freedonia,
which would allow SBG maximum control, but if something was to go wrong in building or
everyday work agendas, then SBG would be held liable for any misfortunes that may occur. If

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there were some kind of occupational hazard that was SBG’s fault, Freedonian workers could
sue SBG for compensation under tort law.
SBG is a United States publically held company. The United States has tort laws that
allow for compensation that has no monetary limit, as opposed to other countries where there is a
ceiling for the amount of compensation the plaintiff may receive. This means that if SBG was
sued in the United States, the company may be liable for more monetary damages than in another
country. The United States also has monetary rewards for punitive damages, which means if the
fault was at the negligence of SBG, then SBG may be held liable to more monetary obligations at
the discretion of the jury hearing the case. The jury can decide the amount of monetary charges
SBG could be held liable for, in accordance with the amount of harm the jury believes occurred
to the plaintiff.
If there were a case against SBG and the company was found guilty, SBG could go
bankrupt under tort law in the United States because the company may be subjected to physical,
as well as punitive, damages. This huge liability would be a possibility for SBG if the company
went into Freedonia in the form of a branch. In contrast, SBG would have control of the business
and everyday activities, which could mitigate the chance for lawsuits to occur through strict
procedures that SBG could put in place and enforce. If there were regulations and procedures set
in place, potential lawsuits could be avoided, but there is always a chance something will go
wrong. In short, having a branch opens SBG up to more liability with more control, as opposed
to having a subsidiary, is less liability with less control.
Instead, SBG would like to be in Freedonia as a subsidiary known as SBF because then
the company would fall under Freedonia’s laws and regulations. Subsidiaries are nationals of the
state in which they were incorporated. SBF would be incorporated in Freedonia, meaning that the
company would be a Freedonian company and therefore abide by the laws and regulations that
belong to Freedonia. Having SBF as a subsidiary and a Freedonian company means that the
company would not fall under United States jurisdiction; therefore, it could not be tried under
United States tort law. The company would stand-alone and have no business relations to SBG.
SBF would be a publically held company, and SBG would be a primary shareholder in SBF’s
company. Deciding to have a subsidiary means that SBG would have to give up primary control
of the company, so there cannot be a large amount of our executives working for SBF. If there
was a lawsuit, the lines of separation between SBG and the subsidiary would risk being blurred,

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resulting in the subsidiary being possibly linked to SBG, and thus liable, in the case of such an
event. SBG also can’t own all of the shares of the company; there needs to be other owners in
order to show the separation between SBG and SBF.
Shareholders of publicly held companies are not supposed to be held liable for the actions
of a company, which is part of the reason why being a shareholder to SBF is so appealing.
However, in recent cases, piercing the corporate veil (when liability protection is foregone so
that some shareholders may be held liable for companies actions) has occurred with some
companies, though this phenomenon is rare. This is a possible risk if SBG owns too much of the
shares that SBF has. In negotiations with Freedonia to have a subsidiary in their country, we
have come to an agreement on minimum capital, executives, and repatriation. SBF will have one
or two SBG executives who will work in their management. Also, SBG wants to have one board
member on SBF’s board. This number is not very high and does not open SBG to a lot of
liability because one or two executives cannot control SBF. SBF would still be its own
functioning company.
Freedonia also requested that repatriation be implemented. In negotiation, we came to the
decision that 3.5% of SBF’s revenue would be left in Freedonia’s bank; this ensures that if
something did happen there would be money to compensate for damages. SBG agreed to this
because it also decreases its liability. If there was money in the subsidiary in the case something
goes wrong, then SBF would be a functioning company with revenues to compensate for
damages. It also decreases the chance that plaintiffs would try to go after SBG as a shareholder
because there would be money in the subsidiary already. The same precautions are the reason for
having minimum capital requirements of 200 million dollars the first few years, and 400 million
dollars after that. Agreeing to the minimum capital and the repatriation with Freedonia helps to
limit some of the liability SBG would have with SBF.
These precautions allow SBG to have a larger percentage of shares of SBF with little risk.
For these reason, SBG would like to only own 30-35% of the shares in the subsidiary because the
liability would not be very risky due to repatriation and minimum capital. If the minimum capital
and repatriation were not an agreement, then risk would increase with the 30-35% shares of SBF.
At 20% however, there would be less risk as well as limited liability. Since there is repatriation
and minimum capital, having 30-35% is not too risky and overall a good choice for SBG. These
choices are set in place to protect SBG as a whole from any further litigation issues.

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BUSINESS DEALS
From negotiation with the Freedonian government, we mainly agreed on three big
business deals: Mine Sites, Revenue, and Foreign Corrupt Practices Act. The First major
business deal with Freedonia is about Mine Sites. In order to do mining business in Freedonia,
we need to have locations for mining. To get the lands for mining, we would have two choices:
purchasing or leasing. From the first negotiation with the Freedonian government, we agreed that
we would start mining with one mine with a 15 years lease and 10 year renewables, and then we
would decide whether to add another mine after 10 years. This agreement would provide several
benefits to us.
Mining Sites
First of all, leasing allows us to have more flexibility. Although we intend to do our long-
term business in Freedonia, we can easily relocate to another mine site where we can find more
minerals that has better access to the markets, or better suits the needs of our business or our
budget. Next, it is better to lower cost to increase profits for all businesses. If a company planned
the new project, they would like to know about how much the costs is going to be. If we bought a
mine, we typically need to pay a down payment by 20 to 30 percent and then a mortgage.
Leasing does not have an effect on operational costs because it is fixed; however, it will be able
to lower the initial costs. Finally, we do not have to worry about resale; if we bought mine sites,
we would have to resell after leasing was up. However, there would be no market for the mine
sites we used because mine sites are usually far away from markets. Also, Freedonian
government would not allow us to resell mines anyway. Therefore, there are no benefits for us to
own mines sites.
Although we agreed on leasing, we still need to decide on a location where we would
mine. In Freedonia, there are many nomads, and 75 percent of population is distributed to rural
areas. Also, open pit mining techniques that would be used pollute water and can make it
unusable. If we decided on a location closed to the area for Freedonians, it could impact their
health. In order to minimize risks for Freedonian health and the environment, we agreed that the
location has to be located at least 50 miles away from big cities, 25 miles away from rivers, 25
miles from arable land, and 10 miles away from sacred areas.

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We agreed on minimum conditions for mine sites, but we still need to know where we
could find minerals and how many minerals we would have. Freedonia and SBG found an ideal
location for a mine, but we can only mine there if there are, in fact, minerals in the location,
which is not currently known. We cannot mine without minerals. Since we do not know where
we can find enough minerals from mining, we agreed on the use of third party to examine how
many minerals the land has. The use of third party would benefit us because, in general, third
party has more focused skills and knowledge so that they could examine minerals more
accurately. Also, the use of third party is more unbiased than us because they are not affected by
the results. Even if they concluded that enough minerals were not found based on their analysis,
we would just need to choose another locations and ask third party to observe it. Therefore, the
third party’s result could have more credibility in terms of accuracy and fairness. However, the
use of third party is not free, so we would partially have to pay for them. However, we agreed
that Freedonian government would pay for the cost of third party by 50 percent, and we would
pay the remaining cost.
When leasing was finished, we agreed with Freedonian representatives that we would
remediate the holes we made. Since we chose leasing, we would need to return the lands as close
to their original state as possible before our lease was up. However, we would dig a huge hole for
mining, so we need to know whether or not we had to remediate the holes. From the third
negotiation with Freedonian government, they would require us to remediate the holes, but fixing
the holes would cost a large sum of capital, so we negotiated with the Freedonian government in
exchange for removing import tax, which previously was agreed to include a 5 years grace
period and 2% tariffs after 5 years. However, Freedonia government offered us a 15-year grace
period and 1.5% tariff so that they could create a Bilateral Investment Treaties (BIT) in the
future. We believe that we would import most of our machines and equipment into Freedonia in
subsequent years, so that we would have less of an impact from import taxes. Therefore, we
agreed that we would remediate the holes at mining sites in exchange for a 15-year grace period
and a 1.5% tariff.
Finally, we successfully negotiated with Freedonian government to have Right of First
Refusal, where an entity is given the first opportunity to negotiate a business with a company
before anyone else can. This is important for us because we would have the first opportunity to
negotiate for mining sites before any other mining companies. It could also give preferential

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treatment for mining sites for SBG. When Freedonia develops its own economy and becomes
more competitive, we would be able to have a right to negotiate with Freedonian Government so
that we would have more chances to gain better deals.
Revenue
Another factor we negotiated with the Freedonian Government includes Royalties,
Minimum capital law, and repatriation laws. We agreed on royalties with 7 percent of mineral
sites, but Freedonian government presented us minimum capital law requiring us to keep
minimum capital in Freedonia. They also offered repatriation laws, requiring us to keep a certain
percentage of revenue in Freedonian banks. The Freedonian government also presented us
$700,000,000 for minimum capital law. Although our equipment has millions in value,
$700,000,000 is exceptionally high, especially for small mining companies like us. Moreover,
they required us repatriation laws with 5 percent on revenues, meaning that we would need to
keep 5 percent of revenue in the Freedonian bank. This is also higher because that 5 percent of
revenue is not useable for us. Because we cannot use it, we negotiated to lower the amount from
$700,000,000 to $200,000,000 for the first few years, and then raise it to $400,000,000
afterwards for minimum capital. We also negotiated to lower the percentage of revenue from 5%
to $3.5 in exchange for increasing royalty from 5% to 7% on revenue. We agreed to the
minimum capital and repatriation to decrease SBG’s liability as was mentioned in the subsidiary
section.
Foreign Corrupt Practices Act (FCPA)
SBG is a publically held company of the United States; our company has an obligation to
follow the Foreign Corrupt Practices Act (FCPA). This means that SBG and our representatives
cannot take or give bribes in order to gain anything. This is why we asked Freedonia to pass
some kind of anti-bribery law in their country to make business transactions fair for all parties. If
SBG were to go into Freedonia and not be allowed to give bribes (assuming bribes are a part of
Freedonia’s business culture) it would seriously impede on SBG’s ability to conduct business in
Freedonia. If Freedonia passed anti-bribery laws, then we would be able to follow the FCPA’s
rules and still conduct business in Freedonia. In negotiation 2 we were able to get Freedonia to
agree to pass anti-bribery laws similar to the FCPA, as well as sign onto the Organization for
Economic Cooperation and Development (OECD)

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LABOR LAWS
From the first negotiation with the Freedonia government, we agreed on many factors
related to our labor practices. Labor agreements that the Freedonian government would turn into
laws include: employees have to be at least 15 years old for easy or simple jobs, and over 18
years old for more dangerous jobs because these jobs require more skill and have more risks. The
working hours would be from 55 to 60 work hours per week at a minimum wage rate of $3 per
hour. Although Freedonian representatives asked us to pay at least $5 per hour, we counter
offered and agreed on $3 per hour by offering to provide housing and basic utilities for our
employees.
Knowing the minimum wage rate is imperative, as wage rates are associated with labor
costs. If wage rates are cheaper, we will have lower labor costs. In addition, we would not be
vulnerable, as long as we followed the minimum conditions. Even if our employees complained
about lower wage rates, we would not have to raise their wage rates as long as the wage rates are
above or at the minimum wages rates. However, we should pay the wage properly based on each
employee’s performance and ability, and should raise his/her wage if necessary. If we just kept
paying them the minimum wage rates, it could impact our company image such as Wal-Mart.
Reputation issues are huge impacts for us, so we need to evaluate our labor performance
carefully and pay them properly to avoid having a bad reputation. In exchange for lowering the
minimum wage rates, we need to provide houses for our labor workers, such as trailer housing
type. In short term, providing housing and utilities to employees would probably cost more than
decreasing the minimum wage rates from $5 to $3, but offering the minimum wage rates from $5
to $3 would bring benefits financially to us in the long term because housing costs would be
minimal after the initial investment.
SBG, as well as SBF, should know if there were any specific safety laws or regulation on
the mining industry in Freedonia. Each industry has its own safety laws or regulations for
employees in order to protect the employees from injury or disease. Mining is one of the world’s
most dangerous occupations; many serious accidents occurred in mining all over the world, such
as gas explosions, chemical leakage, electrocution, and fires. In order to protect our employees
from serious accidents, we agreed with the Freedonian government on safety laws, agreeing that
we would have to provide safety equipment, have training and orientation, offer break times, and

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provide workers’ compensation and a medical center. In regards to workers’ compensation, SBF
would be paying the premiums for the employee’s workers’ compensation insurance.
Furthermore, we agreed to allow labor unions because they promote equal payment and
treatment for everybody, and can give workers a stronger voice. For example, labor unions can
increase job security because they can prevent companies from laying off employees without
appropriate notice and compensation. In addition, the employers have to listen when a large
group of employees come together and demand something such as better payment. Therefore,
labor unions support all employees, including minority workers. Labor unions could impact SBG
because they could protest very unreasonable things, such as employees wanting high wages or
too excessive amount of vacation time. Even though there is the possibility of protests that could
become very unreasonable, the SBF’s employers still would have to listen and deal with the
protests, which means the employers have to spend more time dealing with those issues. If
employees protested better payment, the employers would need to respond by either raising wage
rates or keeping the same wage rates as before. If the employers decided to raise the wage rates,
it means that labor costs would increase. If the employers decided not to raise the wage rates and
keep the same rates as before, union members could strike because they are legally allowed to do
so. Strikes can cost us directly from the lost production and a decrease in sales. For example, if
our union members went on strike, sympathetic customers or our commercial customers might
stop purchasing our products or services or working with us, which could negatively impact us.
Therefore, the decision to have labor unions is very significant because it could greatly impact
our operation.
Finally, since Fredonia is a sovereign state, it has the power to do everything necessary to
govern, such as making and imposing laws, meaning that Freedonia has absolute power to
regulate us. Although Freedonia has supreme power, we could successfully lower the minimum
wage rates from $5 to $3 per hour in exchange for providing housing and basic utilities.
Freedonia is going to set this labor agreement as laws, so we would be penalized if we violate the
agreements we’ve already reached.
NOMADS
Another key issue that we must address before heading into Freedonia is their indigenous
nomad population. A substantial portion of Freedonia’s rural population consists of nomadic

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tribes that could have issues with the placement of SBF’s mines. Although mainly the
government of Freedonia would handle this issue, its results would have a direct and potentially
catastrophic impact on our future dealings within and outside the country. We have voiced to
Freedonian representatives that it is imperative that any issues that arise with the nomadic
population come to a swift and ethical resolution. Failure to do so could result in potential
damage to SBG’s and SBF’s reputation that we had Freedonia sign onto Convention 169, which
would hold them to ethical and fair treatment of their indigenous people in the chance that we
would need them to relocate in order to access a new mining area. It is important that the issues
surrounding the nomads are handled carefully in order to protect the reputation and in turn future
business dealings for SBG.
Convention 169 will also ensure a mutual understanding between SBG and Freedonia
that it is the duty and obligation of their government to handle the issues with the nomadic tribes.
Freedonian representatives said that they would avoid trying to move the tribal people, but would
agree to relocate them if their placement interfered with our access to a new mining site. They
also understand that we would hold them accountable for abiding by Convention 169 if they
moved them. In addition, Freedonia has agreed to handle the compensation and relocation of the
nomads, though, they would not move the nomads from any sacred ground, where we would not
be able to mine within 10 miles of anyway. Though this would cause problems if we were to
discover minerals in one of these areas, their representatives assured us that this would only be in
regard to a few sacred land sites throughout the country, and would likely cause little problem.
We agreed to this in order to avoid any damages to SBF’s reputation that could occur from land
disputes with the nomads over their sacred lands that they would not want to abandon. There are
clearly some risks involved with the relocation of the nomadic people, but by having Freedonia
sign Convention 169 and holding them to it, this risk would be mitigated and offer both SBG and
SBF’s reputation some protection.
In addition, some of the nomads will most likely be willing to work for SBF so recruiters
will be trained in order to communicate with them and hire workers. The nomads offer a useful
source of labor that is also fairly easy to locate because they would already be at the potential
mine site. The availability of willing nomads will cut costs associated with finding new workers,
although the cost of training one of them will most likely be a little higher because they have
little experience in anything else other than herding. The nomad workers will also have little to

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no knowledge of mining and therefore they will be given different tasks than the other more
experienced workers. The hiring of these nomads and appointment to less technical work will
provide a cheap source of labor while keeping operations running at optimum capacity. This is
also a good situation because it will also cut down on the cost and effort associated with
relocating more nomads.
EXPROPRIATION
Under Article 2 of the UN Charter of Economic Rights and Duties, Freedonia has the
right to expropriate SBG’s operations within the country. Although there is nothing we can do
about their sovereign right to expropriate, Freedonia would also be obligated to grant SBF
‘adequate compensation’ for the expropriation of their operations. We can also set what SBF
would consider adequate compensation on the off chance that our operations do get expropriated.
After initial negotiations, Freedonia representatives voiced that they would hope to avoid any
need to expropriate any SBG operations. Since they are a developing country and want to set a
good example of their hospitality to the international community, they have said that they have
no plans to expropriate, but of course they do not need to inform us if they plan to expropriate.
Because of this risk, we have come up with a simple equation for receiving adequate
compensation if SBF is expropriated by the Freedonian government: the compensation will be
considered adequate if Freedonia refunds SBG the fair market value for a large-scale mining
operation of SBF’s stature. The compensation will be paid back in increments over a span of four
years at an interest rate of 3.75%. Freedonia will pay 40%, 30%, 20%, and 10% of the
compensation over the first, second, third, and fourth year respectively. Freedonian
representatives were insistent on this payment system because of fear for their infrastructure with
a lump sum payment, so we agreed as a sign of good will. Freedonian representatives have
agreed to this number as adequate compensation, and by demanding this amount, any risk
affiliated with Freedonian expropriation of our operations would be mitigated and safeguard
SBG’s investments in the country.
ENVIRONMENTAL ISSUES
As you know, open pit mining can take a large toll on the environment. Due to the impact
SBF’s operations would have on its surroundings, environmental regulations have been a
significant part of our negotiations with Freedonian representatives. Throughout the negotiations,

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we have discussed the environmental effects that are more than likely to occur as a result of
SBF’s operations in the country. The Freedonian representatives voiced their concern for their
environment, and would like to keep the harm to a minimum; therefore, they will pass domestic
laws in regards to our environmental impact. Although they will have their own domestic
environmental laws, we have agreed to abide by the US standards found in legal documents like
the Clean Air Act and Clean Water Act. We agreed to this because we would not have to change
operations in any way since we already abide by these regulations in the United States, but the
downside of this is increased costs associated with higher environmental standards. However, by
abiding by this higher standard, SBF will be viewed as an environmentally friendly company
while also eliminating the learning curve associated with regulations that are different from the
US. In addition, the Freedonian government would create a fine structure similar to that of the
United States in case regulations were exceeded. Each violation would have specific fines
associated with them and thus should be followed closely by SBF in order to not incur extra
costs.
Another issue in regards to the environment is the accessibility and use of Freedonia’s
water supply for SBF’s mining operations because, as you know, mining requires a huge amount
of water. Only about 4% of Freedonia is arable land, which is why their representatives are
concerned with the amount of water used by SBF. Representatives have agreed to hire a third
party to assess the amount of water in the country and, in turn, set out caps on SBF’s water
usage. Representatives also agreed that the caps would still allow for water usage similar to our
US operations so that there will be plenty of water accessible to keep operations flowing and
profitable. There is some risk involved due to the unknown amount of water in the country, but
once the amount is evaluated, it will be clear how much SBF will be able to use. As mentioned
above, the amount of water pollution will also be regulated, which will incur costs associated
with filtration systems, but this is a necessary step to keep the hosts happy.
In addition, SBF will not be allowed to mine in certain areas because of the environmental
impact of the mines. As mentioned above in the business deal, there will be ‘no mine zones’
located within 50 miles of large cities (namely Freedopolis and Merope), 25 miles of significant
rivers or bodies of water, 25 miles of arable land, and 10 miles from significant tribal holy sites.
This is unfortunate because there is the possibility of losing a profitable mining site due to these
restrictions. However, since SBF would have the right of first refusal on other mine sites, the

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inaccessibility of these sites would not hinder the generation of profits from mines located in
different areas. On top of this, staying away from arable land, cities, and bodies of water will
safeguard SBF from further filtration systems and more expensive regulation. It will also
diminish the risk associated with mining near high-traffic areas such as these.
Finally, the last issue regarding environmental impact is that of remediation. As you know,
open pit mining leaves a large area of ground unusable until remediated. Due to the large impact
SBF’s mining would have on the environment; it was a necessity to negotiate with Freedonian
representatives on the terms of remediation. As mentioned above, SBF would be responsible for
the remediation of the mining sites after they are no longer useful. In return for SBF’s
remediation, Freedonia changed the import tariff agreement to a 15-year grace period with a
1.5% tariff once the 15 years expires. Although this would create costs for remediation and only
delay the import tariff, it would allow SBF to import the vast majority of its equipment before
the tariff became active, thus saving a considerable amount of money. It would also allow SBF to
handle its own remediation instead of relying on the Freedonian government, which would have
needed monetary incentives to take on this task. The Freedonian government has no experience
remediating mines so their idea of fair compensation for their efforts would be quite skewed
since it would take them longer to do a less effective job. With SBF remediating the mines, the
job would be taken care of quickly and efficiently, therefore avoiding further unnecessary
costs. Overall, the costs associated with the remediation of the mine sites would be considerable,
but it would result in lower costs in the long term from the quality and speed of the remediation,
longer grace period, and low import tariff.
INTELLECTUAL PROPERTY
Before SBG will be able to conduct business with Freedonia, there is the issue of
intellectual property rights. As a company with many items covered under the US intellectual
property laws, we have identified the risks of entering a country with equipment and intellectual
property that is only protected in the United States. After negotiating with Freedonian
representatives, they have decided to pass intellectual property laws very similar to the ones
found in the United States. Their laws surrounding patents, trademarks, and copyrights will last
the same amount of time and follow the same processes. They will also sign into the WTO and,
as a result, be automatically bound by Trade-Related Aspects of Intellectual Property Rights

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(TRIPS), which offers a minimum standard of IP regulation. TRIPS and the domestic laws that
Freedonia have agreed to pass will mitigate the risk involved with entering Freedonia with our
intellectual property and continue its protection. The representatives also assured that passing
these new intellectual property laws will be a priority for them in order to help SBG expedite the
process of moving equipment into their country. Without the laws in place, SBG cannot move
anything into Freedonia.
This is very helpful in the establishment of SBF because it will offer swift protection to
the equipment being imported to Freedonia, which will allow operations to begin quickly. It also
reduces the learning curve associated with intellectual property laws that are different from the
United States. The representatives also said they will agree to sign onto the Patent Cooperation
Treaty (PCT), which will allow SBG to apply for patents in Freedonia from the United States,
and the Berne and Paris Conventions, which offer a minimum standard of protection of
intellectual property on an international scale. This is a purely beneficial agreement because it
means SBG can continue to do Research and Development in the United States and not have to
worry about receiving patents in Freedonia. Overall, this is significantly useful for SBG and SBF
in regards to its intellectual property protection within Freedonia because it gives us trademark,
patent, and copyright protection that is based off a similar standard that SBG already knows. It
also gives us immediate protection so that SBG can move into the country soon without the fear
of losing any intellectual property.
Older intellectual property will also come into play with Freedonia. Freedonian
representatives agreed to waive infrastructure-building operations from SBF in exchange for
some technology transfers. Technology that is seen as obsolete, such as older water filtration
patents, would be available for purchase by the Freedonian government in order to help them
build their infrastructure themselves. Since the technology would be older, there is no concern
for extra competition, and their willingness to pay for the technology would add another revenue
stream to SBG. This is a beneficial agreement because it adds more incoming cash while also
substituting expensive investments into Freedonia’s infrastructure for obsolete technology.
FREEDONIA NATIONAL TREATMENT
Another issue that has arisen is the standard of treatment for the U.S. nationals who will
be accompanying us into Freedonia to work. We see it as necessary that some SBG workers who

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are the U.S. nationals work in Freedonia. This will be important because the U.S. nationals will
know SBG’s work and be able to contribute with initial operations, as well as training and every
day management. There is also the issue of the standard of treatment for those Americans within
the borders of Freedonia. States have responsibilities to the treatment of foreign nationals within
their borders, which is why it is so important that we come to an agreement with the Freedonian
Government on how the U.S. workers will be treated. We proposed in the first negotiation that
the U.S. nationals receive the international minimum standard of treatment by the Freedonian
government. International standard of treatment is a standard that sets parameters for the
minimum standards of how a country must treat foreign nationals in its borders. However, this
has caused issues because they have argued that they do not own the resources it requires to even
give their own nationals the international minimum standard. Due to this, they have offered the
Freedonian national standard of treatment to any U.S. national that works within their borders.
This is clearly not as optimal of a situation because they do not have the civil rights that
the U.S. nationals are used to. Not only could this cause issues in the case that an adverse action
attributable to the state happened to one of the U.S. nationals, but it could also decrease the
possibility of getting our top choice employees out to work in Freedonia. We tried to get
international minimum standard of treatment for U.S. nations in the second negotiation, but
Freedonia would only offer their national treatment. We ended up agreeing to Freedonia’s
national treatment because it is not that large of an issue in the overall goal of this business
agreement. There would be very few workers from SBG working in Freedonia due to the fact
that SBF is a subsidiary, and SBG will not be sending their workers to SBF because there needs
to be a separation between the company and subsidiary. Since there were going to be fewer
workers, the issue was not worth pressing, nor was it a subject that would make or break the
deal.
INTERNATIONAL CENTER FOR THE SETTLEMENT OF INVESTMENT DISPUTES
Another important factor to consider is since Freedonia is not currently part of any
treaties, IGO’s, or under contractual agreements, they can practice any acts they want under their
state sovereignty. When continuing with a contractual agreement, Freedonia will need to sign the
Washington Convention for the benefit of SBG. International Center for the Settlement of
Investment Disputes (ICSID) is one of the only international tribunals that has jurisdiction of

15. 15
both states and other parties like investors. SBG would be an investor in the development of
minerals in Freedonia, so it is imperative that The Washington Convention is signed in case a
dispute arises then ICSID could handle it. The contract between SBG and Freedonia would be an
investment contract, which would fall under the jurisdiction of ICSID if there was a signed
contract and parties signed the Washington Convention. ICSID handles all disputes through and
arbitration panel and the arbitration agreements are binding. This would allow any disputes to
have an objective third party and a reassurance that SBG would have fair interactions with
Freedonia should a dispute arise. In the second negotiation, Freedonia agreed to sign the
Washington convention so that disputes would be handled by International Center for Settlement
of Investment Disputes (ICSID). ICSID offers a readily available and neutral court for any
investment disputes to be handled in. If there were domestic violations they would be handled by
Freedonia's judicial system.
REFLECTION AND FINAL RECOMMENDATION
After negotiations with Freedonia, it is our belief that the board should enter business
relations with Freedonia. Throughout the negotiations, we have agreed on many important topics
regarding entering Freedonia to conduct business, while also taking measures to mitigate the risk
associated with this venture for both parties. We agreed to specific business terms such as the
lease and labor laws for SBF to follow. Other key subjects we came to agreements on was
environmental regulations, which provide guidelines for SBF’s operations, and expropriation
agreements, which make sure that if SBF was forced out then there would be adequate
compensation for the subsidiary. Freedonia also shared their views on their actions regarding
their indigenous people, and the fact that they would displace them for mining development.
Although it could present a reputational risk for SBF, Freedonia will sign and be held to
Convention 169, which will help mitigate this risk. Internally, SBG could decide which
employees would be most helpful to the success of SBF, as well as allocating these personnel,
funds, and resources to open SBF as a subsidiary in Freedonia. Overall, throughout negotiations
with Freedonian representatives, we have come to the conclusion that going into business
relations with Freedonia would offer many financial benefits for SBG with minimal risk, making
it a lucrative business decision.