The Jungle - going global in 2016 from soup to nuts

www.dlapiper.com 0April 2016

April 2016

ACC SF BAY AREA -THE JUNGLE

Mogli meets the girl in the village next door –Your M&A deal that you thought was all happening in Silicon Valley goes abroad


Speaker introductions

Issues commonly seen in international M&A transactions:

– Corporate and transaction structure

– Regulatory, antitrust and compliance

– Employment

– Tax

– Intellectual property and technology

Takeaways

Questions

Agenda


Speaker introductions

Louis LehotPartner, Corporate, Securities and M&A DLA Piper

T +1 650.833.2330 M +1 650.796.7280 [email protected]

Brian WheelerPartner, Corporate, Securities and M&A DLA Piper

T +1 650.833.2180 M +1 650.960.6005 [email protected]

Sherman ChuPartner, Corporate, Finance DLA Piper

T +1 650.833.2346M +1 [email protected]

Ute KrudewagenPartner, Employment DLA Piper


Idan NetserPartner, International Tax Counsel DLA Piper



Hypo # 1 Buyer, a Delaware corp headquartered in Silicon Valley,

is a leading global provider of telecommunications equipment and trades on the NYSE

Buyer is a US government contractor

Buyer plans to acquire the target group (also a leading provider of telecommunication equipment) that is a private VC-backed Delaware corp headquartered in Silicon Valley and has operations in the US, Europe and China. Target does not have entities in every jurisdiction in which it operates

Buyer cannot decide whether to purchase stock or assets of target and how to structure the deal (in cash or in stock)

Corporate


Key issues – structure– Transaction structure: stock deal vs asset deal

– Foreign entities structure (subsidiary, sister co., branch, etc.) or the lack thereof

– Bulk transfer laws applicable to transfers of assets

– Financing of the transaction

– what currency to borrow

– currency convertibility

– hedging risks

– use of foreign cash

– Applicability of WARN Act or similar non-US laws

– Deferred or contingent consideration

Corporate


Key issues – consideration: cash or stock– Securities regulation in US and foreign

countries (e.g., intl. blue sky)

– Potential stockholder approval for issuance of shares (e.g., 20% rule)

– Volatility of buyer stock price

– Interest rate risk vs currency risk

– Foreign currency exchange control and convertibility

– Use of non-US cash

– Accelerate unvested equity; equity rollover

Corporate


Key issues – approvals– Foreign investment control / governmental approval

– Antitrust/competition authorities (EU, MOFCOM, national regulation, etc.)

– Registration/license to do business in a foreign country

– US export licenses

– Effect on buyer’s status as a governmental contractor

Regulatory, antitrust and compliance


Key issues – diligence– Alphabet soup…FCPA, OFAC, AML, ITAR and

EAR issues

– PRC: CCCi, certificate of origin

– Political / market access issues…

– Good standing status in foreign jurisdictions

– Lien / litigation / tax searches, or the lack of a reliable source thereof

Regulatory, antitrust and compliance


Global employment in the jungle

Hypo # 2 Upon acquisition of target, buyer plans to retain

certain key employees (who are critical for the business)

Buyer also plans to downsize operation in Europe and relocate some employees to other jurisdictions

Buyer plans to expand the business in China

Buyer discovered during diligence that target group relies heavily on the service of independent contractors and agency workers


Key employment issues in global M&A Retaining key employees (carveout, bonus, clawback)

Transferring employees

Labor unions, works councils, other collective groups, CBAs

Employees misclassification and (mis)use of alternative workers

Outstanding liabilities to employees (e.g., vacation, variable compensation)



Key employment issues in global M&A (cont’d) Assumption of pension and other benefit plans

IP assignment

Immigration status, expat employees

Severance liabilities and restrictions on terminations and relocations

Early planning of global alignment and integration (GAIN)

Data privacy



Agencyworkers

permissible

limitations on time or type

equal pay obligations

equity compensation

Employees

local corporate presence required

payroll registrations

benefits

fixed term contracts

equity compensation

PEOemployees

are joint employees and need to comply with all applicable employment laws

Permissible

Agency worker rules

equity compensation

Independentcontractors

what quacks like a toucan is a toucan

withholding obligations (VAT, GST)

registration obligations

sales agent rules

equity compensation

Global employment in the jungle: expanding to new jurisdictionsStep 1: Pick the right animal


Payroll Local hires Expat employees

Benefits Mandatory (law, CBA) Optional

Onboarding requirements Workers’ compensation

equivalent Pre-hire medical tests Background tests

Employment agreements Requirements Language PIIA Specific terms

Policies Required work rules and

internal regulations “Global” policies (e.g.,

code of conduct) Local policies (e.g.,

disciplinary and grievance procedure)

Exit strategy No at-will employment

internationally Probationary periods and

performance management

Redundancies and performance terminations

Step 2: Master various steps to tame the animal

Global employment in the jungle: expanding to new jurisdictions


Hypo # 3 Target has offices in California, Europe and China

Software for the key products is developed in Ukraine and China

Hardware is manufactured in China

Design, marketing and sales, together with exec team, is in California

All employees in US and China signed standard PIAA agreements

All inventions are patented in US

Trademarks and copyrights registered in the US

Intellectual property


Key issues– Protection of IP in foreign jurisdictions

– Operation of PIAAs under non-US laws

Intellectual property


Hypo # 4 Same startup, except India related party owned 50/50

directly by two founders

Founders are not US citizens and have not made §83(b) elections, but one of them recently moved to the US on a non-immigrant visa

Intragroup contracts provide for only nominal consideration or no consideration at all

The final product is sold by and shipped to buyers in US, Europe and Asia

Tax


Key issues– Use of debt v. equity, or offshore cash

– IP: nature, quality, location, utilization, buyer’s IP structure and thetransfer of purchased IP

– Intercompany relationships (transfer pricing)

– Use of earnouts/deferred purchase price consideration and related taximplications

– Other important tax issues:• Branch tax and PE exposure• Quality of foreign taxes paid and the availability of foreign tax credits• § 83(b) elections, tax withholding and documentation• CFC, PFIC• Sales tax / VAT registration requirement and handling• Practical considerations

Tax


Consider structure and regulatory framework implications early

Drive efficiencies through structure

Simplicity is a virtue…great is the enemy of the good

Thorough diligence process with counsel in each jurisdiction

Seek practical solutions…with big picture in mind

Do not under-estimate the importance of culture

Integration is harder than acquisition…visualize how it will work now

Takeaways


Questions from the audience and panelists comments… followed by shameless propaganda


Louis Lehot advises late-stage emerging private, going public and public companies and their investors in forming, financing, building, scaling and achieving liquidity for technology, healthcare, energy and innovative businesses.

Louis’ recent emerging private company clients have included AdKnowledge, Inc., AdoTube (acquired by Exponential Interactive), Binatone Global (buyer of Motorola Mobility’s companion products business), CheckALT (buyer of Diebold's check processing business), Centric Software, Docea Power (acquired by Intel), Double Beam (acquired by Verifone), Kerensen Consulting (acquired by salesforce.com) and MetricTest (acquired by Microlease plc), and public company clients including CBRE, CHC Helicopter, Hanwha Q Cells, MMI Technologies, Model N, Samsung, Seagate, SK Planet and STMicroelectronics.

Louis’ institutional and fund clients have included venture capital firms Foundation Capital, Hony Capital, NEA and Oak Investment Partners, private equity firms Cetus Capital, Silver Lake Partners and Hellman & Friedman and corporate venture funds at CBRE, CSR plc, GE, Hanwha, Samsung and SK Planet.

Louis Lehot

Louis LehotPartnerT: +1 650 833 2330F: +1 650 687 [email protected]

Education Boston College Law School J.D.

Georgetown University B.S.

Institut d'Etudes Politiques de Strasbourg (France) C.E.P.

AdmissionsCaliforniaNew York

Silicon Valley Office2000 University Avenue, East Palo Alto, California, 94303-2214


Brian Wheeler focuses his practice on public and private mergers and acquisitions, joint ventures, strategic alliances, corporate governance and financial advisor representations. He also has extensive experience in cross-border M&A transactions.

Brian’s work encompasses a wide variety of industries, including technology, pharmaceuticals, medical devices, telecommunications, energy and financial services.

Brian Wheeler

Brian C. WheelerPartnerT: +1 650 833 2180F: +1 650 687 9288 [email protected]

Education New York University School of Law J.D.

Robert McKay ScholarB.A., University of ChicagoGeneral Honors

Waseda University, one-year study abroad program

AdmissionsCaliforniaNew York



Sherman Chu focuses his practice on China and US-based (including cross-border) technology transactions, joint ventures, strategic alliances, complex intellectual property and commercial agreements, and open source. Sherman advises Chinese and US companies on effective structuring and operationalizing transactions to gain approval on regulatory requirements such as CFIUS, export control and anti-corruption.

Sherman joined DLA Piper from Cisco, where he oversaw major legal functions of the company with teams of 20 or more attorneys. He served as General Counsel for the Greater China region for six years. Prior to that, Sherman was head of Cisco’s worldwide transactions practice for ten years, where he was responsible for supporting mergers and acquisitions, strategic alliances, intellectual property and other transactions as well as overseeing antitrust and open source practice areas. In addition, he was also elected to the position of Vice-Chairman of the American Chamber of Commerce in Shanghai, where he represented the interests of a range of businesses in the US and China on legal and political issues.

Sherman Chu

Sherman ChuPartnerT: +1 650 833 [email protected]

Education J.D., New York University School of Law

B.A., Columbia University

AdmissionsCalifornia



Ute Krudewagen focuses on providing multinational companies with solutions to the challenges presented in managing a global workforce. In addition, she counsels companies on employment issues triggered by cross-border transactions.

Ute advises international and cross-border clients on a broad range of complex global employment matters, serving as trusted advisor and managing international counsel for a broad range of multijurisdictional and multidisciplinary projects. Her vast experience includes advising on global background checks, employment and independent contractor agreements, discrimination and harassment claims, social media issues, global policies and procedures, non-compete and proprietary information agreements, works council and union issues, codes of conduct and social responsibility, workplace privacy, employee assignments and global mobility programs, global reductions in force, restructurings and severance and retention plans.

Ute Krudewagen

Ute KrudewagenPartnerT: +1 650 833 2245 F: +1 650 687 [email protected]

Education University of California at Berkeley LL.M.

University of Cologne J.D.

University of Cologne Dr. iur., summa cum laude

AdmissionsNew YorkCalifornia



Idan Netser focuses his practice on all areas of international taxation, including US international corporate and partnership taxation, transfer pricing, Subpart F, foreign tax credits, tax planning and restructuring, international IP exploitation, international joint ventures and M&A transactions and tax controversy.

Idan graduated from the Naval Academy in 1998, with distinction, and from the Naval Advanced Command course in 2001. He served as the Commander of the Identification, Navigation and Communication squadron as well as in different naval command positions on board a missile frigate and led international naval operations in collaboration with NATO. He currently holds the rank of Lieutenant-Commander and continues to serve in the Naval Reserves.

Idan Netser

Idan NetserPartnerT: +1 650 833 2150 F: +1 650 687 [email protected]

Education LL.M., International Taxation, University of Michigan Law School 2008

LL.B., Tel Aviv University 2006magna cum laudeEditorial Board, Tel-Aviv University Law Review

B.A., Economics, Tel Aviv University 2006

Naval Academy, 1998with distinction

AdmissionsCalifornia



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In global M&A and middle market deal volume (mergermarket and Thomson Reuters 2016)

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RELATIONSHIP FIRMSDLA PIPER OFFICES


Our Corporate and Securities practice consists of 250 lawyers in the US, and nearly 600 worldwide, who are experienced at representing clients pursuing sophisticated transactions.

We advise clients on public and private equity and debt securities offerings, mergers and acquisitions and reorganizations.

In addition to offering comprehensive transactional services, the group’s lawyers advise clients on corporate governance, IT, tax, compensation and technology issues.

Our clients include public and private companies, ranging from Fortune 500 companies to startup entities developing industry leading technologies.

We represent over 100 public companies as outside corporate securities counsel. We also represent banks, finance companies, venture capital and private equity funds, insurance companies, pension funds and other institutional lenders in acquisition financings, refinancings, ESOP loans, recapitalizations, restructurings and other complex transactions.

Corporate and Securities


As your company grows and expands in established markets and developing regions, our Mergers and Acquisitions practice group is committed to being your partner for all your acquisition and divestiture initiatives.

Our approach is both strategic and entrepreneurial, drawing on the combined experience of more than 180 lawyers in the United States, and backed by a significant number of global M&A counterparts.

We are highly responsive, multi-disciplined and creative problem solvers dedicated to providing global advice and support, as well as in-depth local knowledge. We work promptly, efficiently and creatively to facilitate deals.

We have built a platform that includes well-established and comprehensive practice capabilities, industry experience in key growth sectors, and access to global funding sources through our strong relationships with the business and funding communities.

From due diligence to post-merger integration, we deliver the transactional resources to help your company prosper.

Mergers and Acquisitions

#1GLOBAL

M&A

In 2015, mergermarket ranked

us #1 globally in overall M&A deal

volume for the sixth consecutive year.


RECENT M&A RANKINGS Ranked #1 globally for announced deals for 6th

consecutive year (mergermarket, 2010-2015)

Ranked #1 in mid-market deal volume globally during 2015 (Thomson Reuters)

Ranked #1 for European M&A deals (mergermarket, 2013 and 2014)

Ranked #1 for UK M&A deals for 8th consecutive year (mergermarket, 2005-2015)

Ranked #4 for US M&A deals (mergermarket, 2014 and 2015)

Ranked #4 globally for announced and completed deals (Thomson Reuters, 2014)

Mergers and Acquisitions

LEAGUE TABLE OF LEGAL ADVISORS TO M&A BY DEAL COUNT

RANKING FIRM NAME DEAL COUNT2015 2014

1 1 DLA Piper 441

2 3 Kirkland & Ellis 386

3 4 Jones Day 342

4 2 Latham & Watkins 336

5 9 Skadden Arps Slate Meagher & Flom 298

6 5 Baker & McKenzie 292

7 7 White & Case 282

8 11 Allen & Overy 260

9 6 Clifford Chance 236

10 14 CMS 229


MERGERMARKET BLOOMBERG THOMSON REUTERS THOMSON REUTERS

DEAL COUNT#1 Global#1 Europe#1 United Kingdom#4 Americas#4 Russia#4 United States#5 France#6 Benelux

DEAL COUNT #4 United States Mid-Market (up to 500m & 250m)#5 United States Announced#6 Global Mid-Market (up to 500m & 250m)

DEAL COUNT#1 Worldwide Mid-Market #1 United Kingdom Involvement Mid-Market and Small-Cap #1 Worldwide Small-Cap#2 Benelux Involvement Mid-Market and Small-Cap#2 Benelux Involvement Small-Cap#2 European Involvement Mid-Market and Small-Cap#2 Worldwide M&A Completed#3 US Target Small-Cap #3 Worldwide M&A Announced #4 Australia/New Zealand Involvement Small-Cap#5 Italian Involvement Mid-Market#4 French Involvement Mid-Market#4 Italian Involvement Small-Cap#4 US Target Mid-Market#5 Australia/New Zealand Involvement Mid-Market

DEAL VALUE#1 United Kingdom Involvement Small-Cap#2 European Involvement Small-Cap #2 Worldwide Small-Cap#3 Benelux Involvement Small-Cap#3 United Kingdom Involvement Mid-Market#4 US Target Small-Cap#5 Australia/New Zealand Involvement Small-Cap

2015 League Tables


RECENT VC EXPERIENCE Named Law Firm of the Year in Corporate

Venture (Global Corporate Venturing, 2015)

Since 2005, represented over 5,500 transactions in the US – US$50 billion in value

In 2015, completed 710 financings transactions globally – 563 venture capital and 147 private equity

Ranked #4 Most Active Venture Capital Law Firm in the US and globally in 2015, PitchBook

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Most Active PE 4th

Most Active Buyouts 4th


DLA Piper is one of the most widely recognized providers of a full range of commercial, intellectual property law, privacy, sourcing and technology law services for leading businesses worldwide.

Our lawyers provide both litigation-related (contentious) and strategic commercial advice to a wide range of industry sectors, helping clients from emerging technology and pharmaceutical companies to established banks and financial institutions achieve their objectives wherever they do business.

Our IPT practice encompasses nearly 500 dedicated lawyers in more than 24 countries, with particular strength in key global markets. Intellectual property and technology law is at the core of any major business transaction or strategic dispute and has become one of the most critical legal areas as companies continue to expand and protect their technologies, brands, products, data and services around the globe.

Intellectual Property and Technology


Our global technology transactions and strategic sourcing lawyers have the market knowledge, legal experience and global presence to provide you with the highest quality legal services throughout the world.

Our practice concentrates on complex transactions and multi-party, high-value project work which frequently spans multiple jurisdictions. We focus on the development, protection, exploitation and use of intellectual property and technology-related assets through the stages of a company's growth, as well as the sourcing of strategic assets and services for use in a company's operations.

Our team has deep industry experience in a variety of sectors, allowing us to provide practical advice and innovative solutions along with market leading technical know-how.

Technology Transactions and Strategic Sourcing E-CommerceCloud

Computing

LicensingIP Development

ProcurementStrategic

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OutsourcingOpen Source

TelecomsTechnology Transactions

Core Areas Include:


Companies operating in global markets face complex employment challenges that require an international perspective combined with a knowledge of country-specific employment practices. We advise a range of clients from local startups to small multinationals to some of the largest brands in the world on a range of complex employment matters, including: Expansion strategies

Employment set-up requirements

Global expatriate mobility

Works councils/unions

Termination of employment

Litigation

Employment issues in M&A and corporate reorganizations

Employment

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─Chambers Global 2010-2014


International Tax

With more than 300 tax lawyers and economists, our global tax advisory services help multinational companies address the complex challenges of international commerce and business operations as well as manage and resolve tax disputes. Our global tax group assists clients in structuring a wide range of transactions, from private equity deals to corporate acquisitions and disposals. Our services include: Transfer pricing

Post-Acquisition Integration

Cross-Border Licensing and IPT Management

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