Larry Placide & Clive Pegus JOINT VENTURE NEGOTIATIONS – Practical & Legal Issues 23 July 2014 Courtyard Marriott, POS

Objectives of Presentation Focus on joint venturing as strategy to develop and expand business operations and to access overseas markets Larry Placide & Clive Pegus

Structure of Presentation  Essentials of Joint Venture  Different Forms of Joint Venture  Rationale for Joint Venture  Finding a Joint Venture Partner  Legal Issues in Negotiating a Joint Venture  Risk Factors  Other Legal Arrangements for Pursuing Business Abroad

Larry Placide & Clive Pegus What is Joint Venture? Joint venture is a business structure or arrangement that brings two or more separate businesses or entities together to share capital (expertise, technology and other resources/assets), risks and profits in a joint business

Why Joint Venture? Synergies created by joining forces bring greater impact, capacity and efficiency than the sum of the separate businesses Larry Placide & Clive Pegus

Rationale for Joint Ventures Access to Capital, including Specialised Staff, Technology and Finance Access to Markets (e.g. Professional Services) and Distribution Channels Business Expansion & Diversification Greater Capacity

Larry Placide & Clive Pegus Rationale for Joint Ventures Development of New Products Increased Technical Expertise Sharing of Risks and Costs Strategic Move against Competition

Larry Placide & Clive Pegus Essentials of Joint Venture Shared business objectives as defined in strategic or business plan Shared ownership and contribution to authorized capital Shared governance and control over management Shared profits or losses

Larry Placide & Clive Pegus Forms of Joint Venture (full integration) Closely resembles merger Parties produce similar goods or provide similar services Parties seek to integrate functions in one area of business or all of their functions Useful for small businesses where objective is to enhance capacity to meet demands of the market

Forms of Joint Ventures (Research & Development) Parties pool skills, knowledge or equipment to develop better products, services or production methods May be for limited purpose and duration such as a study or survey or to apply for tender and if successful undertake the work Larry Placide & Clive Pegus

Forms of Joint Venture (Production & Marketing) Parties either produce goods or services together or market them together or both Economies are gained from combined effort. Larry Placide & Clive Pegus

Forms of Joint Venture (Purchasing) Agreement to purchase goods (or services) together. Higher quantities, more deliverables, lower costs More economies possible through joint storage or sharing of administrative staff Larry Placide & Clive Pegus

Indirect Joint Ventures Networking – E.g. Telecoms, banking, travel – Use of installed factilities, Linx, reservations systems Management Contracts – E.g. Hotel Management where owners partner with brands Larry Placide & Clive Pegus

Indirect Joint Ventures Licencing – Grant licences or franchises – Strong control of franchisor Contract Manufacturing – E.g. Textiles and clothing Larry Placide & Clive Pegus

Finding Strategic Partner Develop business strategy & plan Clarify objectives & contribution of partner Clarify duration Assess risk

Larry Placide & Clive Pegus Finding Strategic Partner Seek assistance of Investment Promotion Agency or Investment Adviser in identifying suitable partners Understand culture & management style of prospective partners MOU with prospective partner

Process Clarification of strategic objectives Research & development of strategic framework Search for suitable partner Disclosures/Exchange of information Due diligence of prospective partner Negotiations of joint venture agreement Registration of business Secure licenses Operationalization of business Larry Placide & Clive Pegus

Structure Can either be a limited liability company, partnership or unincorporated body Companies may retain individual businesses or merge operations for specific objective Collaboration of two individual experts or firms Larry Placide & Clive Pegus

Basic Legal Documentation MOU or Letter of Intent Confidentiality & Non-disclosure Agreement Joint Venture Agreement or Shareholder’s Agreement Incorporation documents By-laws License Agreement for use of technology Trade licences Larry Placide & Clive Pegus

Assessing Partner Recent financial & business performance Business strategic framework Management team Market reputation Shared interest Trustworthiness Credit-worthiness Matters in court or arbitration or anticipated disputes Labour relations history

Due Diligence Corporate Documents Check basic corporate documents (Articles of incorporation, by-laws, minutes of directors & shareholders meeting, annual returns, trade licenses, trademarks registration, patent registration, copies of distribution agreements, list of subsidiaries, equity & debt financing agreements, stock options, shareholder information, leases, and other material contracts, insurance, labour agreements Larry Placide & Clive Pegus

Due Diligence Litigation & Audits Audit reports & letters to management re. internal accounting controls Description of any recent change in accounting method Active litigation, including letters asserting claims & complaints Court judgments, orders of Government agencies & settlements Larry Placide & Clive Pegus

Due diligence (Environment) Schedule of hazardous materials stored, manufactured or located at facility Information on any incidents involving release of potentially hazardous materials All OSHA reports All permits or approvals obtained from any governmental body responsible for environmental & health regulation Larry Placide & Clive Pegus

Due Diligence General Is partner financially secure Does partner have credit problems Is partner already in JVs How is partner performing re. production, marketing & personnel What customers and suppliers say about partner’s trustworthiness and reputation Larry Placide & Clive Pegus

Legal Issues Structure of JV (partnership, limited liability company or unincorporated entity) Treatment of sensitive & confidential information to be shared during negotiation Identifying information to be shared Develop MOU & NDA prior to negotiations Valuation of assets (including intellectual property & goodwill) to be transferred to JV Ownership structure

Larry Placide & Clive Pegus Legal Issues con’d Governance Management & decision-making Reporting & information sharing Capital development Dispute resolution Governing law Understanding law of forum Exit strategy

Structure of JV Limited liability company, unlike partnership, restricts liability of partners in event of JV fails and is wound up Larry Placide & Clive Pegus

Governance & Management Key strategic and management decisions should require consent of all partners Examples: borrowing, capital development, manufacture and sale of new products, sale of assets, territorial expansion, dividends, engagement and dismissal of key executives Larry Placide & Clive Pegus

Reporting & Information Sharing Ensure that all relevant management decisions and critical information are reported to you in an expeditious manner Ensure appropriate confidential procedures and systems for sensitive information Larry Placide & Clive Pegus

Dispute Resolution Critical to include provision in Agreement on dispute resolution, especially in deadlock and on winding up Method of dispute resolution (judicial adjudication/ADR) Forum (check whether Convention on the Recognition & Enforcement of Foreign Arbitral Awards applicable in forum & jurisdiction of partner) Governing law Larry Placide & Clive Pegus

Governing Law Parties are generally free to choose proper law of contract, provided the choice is bona fide Proper law may not have any relationship to parties Where no express choice of law, Courts may decide on basis of implied or presumed intention of parties or the law with the closest or most real connection Law of place of performance may regulate mode of performance NB. US extraterritorial jurisdiction of certain decrees Larry Placide & Clive Pegus

Exit Strategy Consider what will happen when JV comes to end How shared intellectual property will be unbundled How confidential information will be protected How will future income arising from joint venture activities be treated How will continuing liabilities be treated. What happens to continuing business & outstanding contracts Procedures for valuation & distribution of assets Larry Placide & Clive Pegus

Risk Factors Types Misuse or appropriation of information shared Loss of control of technology Loss of assets especially where exported to foreign jurisdiction in support of JV Double taxation Applicable foreign exchange & currency risks Conflict of laws in multijurisdictional JVs & transactions Misunderstanding due to cultural differences Objectives not clearly defined Differences in leadership style Parties unable to fulfil commitments

Larry Placide & Clive Pegus Other Arrangements Licensing arrangement Management Contract Collaboration Agreement

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