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Eliot Norman International PartnerEliot Norman International Partner

enorman@williamsmullen.comenorman@williamsmullen.com

Washington, D.C. Washington, D.C.

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For Every Opportunity There is a Risk

• Smart Grid• Save 2/3 energy lost through T&D (transmission and

distribution)• How: Run it on Internet with Digital Communications• Risk: Key Infrastructure: now vulnerable to cyber-attacks.• Result: BOOM in Cyber-Security Spending by Utilities

– M&A: “on fire for cyber security companies with smart grid technologies” M&A: “C’est Chaud”

– Global smart grid cyber security: $4 billion by 2013 at annual growth rate of 35%

• Who are players: Big IT system Integrators: such as Northrup Grumman• Key Contributions: Small High Tech Security Firms

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Legal Issues Affecting Market Entry

1. Need For “Services de Conciergerie” (PME)

2. “Level playing field” for Foreign Companies?

3. Teaming Agreements

4. M&A? FINSA (Foreign Investment and National Security Act)

5. Use Safety Act for Anti-Terrorism Technologies

6. Take Advantage of U.S. Recovery Act : financial incentives for Smart Grid can include cyber security protections

7. Proxy Agreements and SSA to handle Classified Information

8. Know and Respect Export Control Rules

9. Impact of New Legislation: Cybersecurity Enhancement Act: HR 4061 and Pending Cybersecurity Bills in Senate:

10. Commander of U.S. Cyber Command: Calls for cyber rules of engagement: offensive capabilities.

11. Presidential Emergency Powers?

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Concierge Services: How to Keep it Simple

to Enter the U.S. Market

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Support Services for Starting a Business in Fairfax County Virginia

• Virginia’s Concierge Legal Services Program

• How the program works

• What are the services offered?

• Result: another Virginia Advantage for your international business

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Top 12 Concierge Services for “Start-up” of Your U.S. Company

1. Form U.S. company: corporation or limited liability company

2. Conduct trademark search and file trademark application

3. Reserve and apply for Internet domain name

4. Apply to Internal Revenue Service for Employer Identification Number for tax purposes

5. File local business license

6. Review lease for office

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Concierge Services (cont.)

7. Assist with opening U.S. bank account, obtaining U.S. Social Security numbers

8. File for New Office L-1 or other visas for manager and family

9. Strategic Advice for Obtaining U.S. Government Grants, Contracts or Subcontracts

10. Advise on employment law

11. Advice on export of products to U.S.

12. Review distribution/agency agreements for selling products in U.S.

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First Choice for Visas: New Office L-1

• The L-1A Manager

• The L-1B Specialized Knowledge

• Both allow transfer from French or other foreign company to U.S. company

• The L-1 is a very useful temporary, nonimmigrant visa for starting a new office in the United States

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L-1 Visas: Intra-Corporate Transfers

Smart Grid Cyber Security Technologies

USA, Inc. FAIRFAX, VIRGINIA

Cyber Security GmbH

Munich, Germany Managers, Executives

Engineers

Security LtdManchester, UK

IP Experts

Smartgrid Security Technology, SA

Grenoble,FranceTechnical

Support Staff

SmartGrid SecuritySystems,

Ltd. New Delhi, India

SoftwareProgrammers

L-1

Transfers

Cyber Security Holding

GmbHBerlin, Germany

67%

100%

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Other Support Services

• Compliance and risk management– Products Liability—reducing risks – Energy Regulatory Compliance

• Advice on important contracts under U.S. law – license agreements– sales agreements– non-compete and confidentiality agreements– financing agreements

• Financial incentives under U.S. Recovery Act • Strategic Advice :M&A and joint ventures • Doing business with U.S. government

• Tax Planning

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The “Level Playing Field” For U.S. Market

Entry

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American Recovery and Reinvestment Act of 2009 (ARRA)

• Signed into law by President Obama on February 17, 2009

• Provides a total of $787 billion in funds• Unprecedented level of

funding designed to help create and save jobs, jumpstart the economy, and build the foundation for long-term economic growth

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Follow the Money: U.S. Stimulus Act Allocations?

• “Shovel-ready jobs?”

• Roads and Bridges?

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ARRA: Spending Provisions

• Funds designated to the following sectors:

– Energy and Environment: $98 billion– Transportation: Rail, roads and bridges: $49

Billion . Only 50% of Energy/EnvironmentOnly 50% of Energy/Environment.

– Defense and Security: $16.448 billion

– Agriculture and Rural Development: $15.986 billion

– Biomedical research $10 billion

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3rd Generation Photovoltaic Cells

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Can Foreign Companies Participate in ARRA Projects?

• Common Perception: Given the purpose of ARRA, and its Buy American Provisions, Stimulus Projects must be reserved for U.S. companies and U.S. manufactured products

• ARRA states: Any ”project for …public building or public work” can use Stimulus funds only if all the iron, steel and manufactured goods are produced in the United States.” Buy American?

• But ARRA also says that : “This section shall be applied in a manner consistent with U.S. obligations under international agreements:” WTO obligations apply.

• Reality: Significant exceptions to Buy American Provisions exist and can benefit foreign companies:

• Buy American Act Provisions not a major issue• Proof: Look no further than Iberdrola Renovables or SAFT/Johnson

Controls

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“Buy American” provisions affecting Stimulus Act public construction projects do not prevent foreign company from being contractor or supplier when:

• Application of “Buy American” provisions would contradict U.S. obligations under international agreements.

• The United States and the company’s foreign country are signatories to the WTO-GPA.

• The WTO-GPA prohibits application of the BUY AMERICAN ACT to Stimulus Act procurements by federal agencies and 37 state or other government authorities.

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Who Has Signed the WTO-GPA?• Parties and Date of entry into Force/Accession:

• Canada 1 January 1996

• European Communities with regard to its 27 member States: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom1 January 1996Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia 1 May 2004 Bulgaria and Romania 1 January 2007

• Hong Kong , China 19 June 1997 Iceland 28 April 2001 Israel 1 January 1996 Japan 1 January 1996 Korea 1 January 1997 Liechtenstein18 September 1997 the Netherlands with respect to Aruba25 October 1996

• Norway 1 January 1996 Singapore20 October 1997 Switzerland1 January 1996 Chinese Taipei 15 July 2009

• United States 1 January 1996

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Example 1: U.S. Department of Transportation (but not Federal Aviation Administration) solicits bids for Stimulus Act project.

• Result: A Foreign WTO-GPA company is eligible to bid, because Annex 1 to GPA lists U.S. Department of Transportation (but not Federal Aviation Administration) among covered central government entities.

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Example 2: Pennsylvania Department of Transportation (but not South Carolina Department of Transportation) solicits bids for project.

• Result: A foreign WTO-GPA company is eligible to bid, because Annex 2 to GPA lists Pennsylvania Department of Transportation (but not South Carolina Department of Transportation) among covered sub-central government entities.

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Example 3: Port of Baltimore (but not City of Charleston) solicits bids for project.

• Result: A foreign WTO-GPA company is eligible to bid, because Annex 3 to GPA lists Port of Baltimore (but not City of Charleston) among other covered entities.

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Additional Loopholes• Buy American” provisions affecting

stimulus-package public construction projects do not prevent a foreign company from being contractor when:– Company can obtain WAIVERS of Buy

American Provisions in Stimulus Act

– U.S. companies do not produce goods “in sufficient and reasonably available quantities” and of “satisfactory quality”; or

– Application would contradict “the public interest.”; or

– Application would increase project’s overall cost by more than 25%.

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Remember: “International agreements” do not provide only exception to “Buy American” requirements

• Between 7 April 2008 and 17 September 2009, 18 Federal Register notices from U.S. government entities including Environmental Protection Agency, Department of Commerce and Department of Agriculture have granted: – 13 “unavailability” waivers; and – 5 “public interest” waivers.

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Stimulus Act: Lets Assume That “Buy American” Provisions Apply

A foreign company can still participate in the procurement under the Stimulus Act if:

• There has been a “substantial transformation” of its products in the United States into a new or different “manufactured good distinct from the materials from it was transformed.”

• NOTE: “There is no requirement with regard to the origin of components or subcomponents in manufactured goods or products, as long as the manufacture of the goods occurs in the United States.”

• There are also “De minimis” exceptions: 5% of value for incidental products (EPA) = Blanket Waivers

• Summary: Each case has to be evaluated individually in terms of the products involved, the identity of the procuring agency, whether the Buy American Act provisions apply, and whether exceptions or waivers to the Buy American Act provisions exist

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German Turbo-Generators for Waste-to-Energy Power Plants

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German Turbo-Generators for Waste-to-Energy Power Plants

• We “Americanize” the supplier

• We qualify under Buy American

• We block Chinese competition

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M&A: How to Accelerate U.S. Market

Entry

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June 2010

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M&A Considerations 1. Why Buy? Why Now?

2. Defining Your Acquisition Strategy

3. Valuation Issues

4. Due Diligence, Negotiations and Closing the Deal

5. Financing the M&A Deal

6. Cross-Cultural Issues

7. Post-Acquisition Operations/Risk Management

8. The Joint Venture Alternative

9. Special Issues: IP, Antitrust, Buying Government Contractors

10. Reducing Taxes

11. U.S. Immigration: recruiting/retaining global talent post-acquisition.

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Make initial contacts with identified targets to explore potential strategies for partnership

Monitor websites that list businesses for sale, and reach out to investment banks and business brokers to learn about their existing sell-side clients

– Be prepared to execute the seller’s form of Confidentiality Agreement prior to receiving any detailed information

Review available information on the target, and request additional data, as needed

Prepare financial models reflecting the effects of the acquisition and quantify any available synergies. Sellers may request preliminary valuation feedback before proceeding to in-person meetings

If interest exists to move forward, visit the target’s headquarters to meet the management team and tour the facility. More detailed information is typically made available at this stage

Based on information obtained to-date and with support of shareholders and financing sources, prepare a formal, non-binding letter of intent to make the acquisition

Identifying TargetsAnd Initial Due Diligence

Internal Preparation

Define high-level acquisition strategy, including rationale(s) for acquisition, characteristics and deal size of ideal target, etc.

As possible, develop a list of potential targets, such as high-quality competitors, joint venture partners, other members of industry trade groups, etc.

Coordinate the assembly of a professional deal team, including experienced transaction attorneys, investment bankers/buy-side brokers, an accounting diligence firm, and other advisors

Begin assessing long-term capital needs, including meeting with bankers and expanding financial flexibility as needed

Closing the Transaction(8-10 weeks)

If agreement on transaction price and structure is reached, proceed to closing through multiple and simultaneous “work streams” (1):

1. Conduct confirmatory due diligence

– Financial/Accounting and Tax

– Operations

– Sales & Marketing

– Human Resources

– Legal and Risk Management

– Environmental

2. Negotiate Purchase & Sale agreement and disclosure schedules

3. Secure transaction funding (as needed)

Execute P&S agreement and close

Post-closing true-ups

Buy-Side M&A Process

(1) See next slide for a diagram of a coordinated buy-side due diligence and closing process.

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Target Company

Operations /

Manufacturing

Sales & Marketing

Environmental

Legal & Intellectual

Property

Acquiring Company

Real Estate

Risk Manageme

nt

Accounting

Finance & Treasury

Human Resources & Benefits

Buy-Side Financial Advisor

HR and Benefits consultants, if appropriate

3rd party insurance

providers, if appropriate

Appraisal firms, if

necessary

Transaction services team,

if desired

Banks & Financial institution discussions

Outside Counsel

Consultant for market study, if appropriate

Environmental consultants, if appropriate

Tax work and review with

Auditor

Coordinated Buy-Side Due Diligence and Closing Process

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Joint Ventures & Teaming

Arrangements:Alternate U.S. Market Entry

Strategies

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Joint Ventures

• Often an excellent alternative to the M&A deal

• Factors for success

• When and why does it not work?

• How to structure: tax, legal issues

• Use in Government Contracting?

• Use in private sector projects

• Case examples

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Government Contracting

• Standard Competitive Bidding model may not always apply to government contracts or subcontracts

• Alternatives: Teaming arrangements with Energy Company holding the General Contract – How does it work?

– Benefits

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Inflatable Boat from GSA Schedule

• 27' Extreme Patrol/SAR Aluminum-Hull Rigid Inflatable Boat (A-RIB) with a 42oz polyurethane collar or Foam Hybrid Collar. Set-up for inboard(s) or outboard(s) machinery package. Select center console or full cabin configuration. See option ...Manufacturer: NORTHWIND MARINE INC.Contractor: NORTHWIND MARINE, INC. [GS-07F-0416N] (s) $113,622.00 EA 120 days delivered ARO

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International Tax Planning Before You Cross the Atlantic

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Other Inbound Investment Considerations:

Tax and Treaty Eligibility

Corporate vs. LLC form: Corporations do not have "flow through" tax treatment and hence are required to file tax returns. Limited liability companies, on the other hand, have "flow-through" tax treatment and are not required to file income tax returns; rather their parent companies must file income tax returns in the United States. Since most foreign companies do not want to file tax returns in the United States, the preferred form of entity for U.S. operations of foreign companies most often is the corporation.

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Taxes

• Worldwide Income Taxation (subject to foreign tax credit regime)

– Income Tax. The revenue generated by the U.S. subsidiary or U.S. operations of a foreign business will be subject to taxation in the U.S. This tax is assessed at the federal and state levels.

– Federal Tax. Federal income tax rates are set depending upon many factors. Federal corporate tax rates range between 15% and 39%; the average tax rate is typically 35%.

– State Tax. State income tax rates are set forth on a state by state basis. The current rate for corporate income tax in North Carolina is 6.9%. This is lower than many other states, including California (8.84%) and New York (7.5%-9%).

• Accounting considerations (FIN 48; permanent establishment, etc.)

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International Tax Planning

Permanent establishment: initial assessment of taxable presence;

• Transfer pricing:

– Where to direct profit:

• Profit Drivers:

– Capital;

– Function;

– Know how (and other intangibles);

– Risk

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International Tax Planning

• Financing: debt-to-equity considerations (including section 163(j) restrictions);

• Treasury Management – repatriation planning

– Where a treaty is absent

• LOB provisions and treaty “shopping”

• Holding company planning techniques

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Conclusion and Some Practical

Recommendations

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Summary 1. Be flexible, get advice early in the process

2. Keep it Simple: Concierge Services for “Start-up” of Your Company

3. There is a “Level Playing Field” for French companies: You just need to know the Rules of the Game

4. Broad range of opportunities under U.S. Recovery Act, including

- Special incentives for Cyber Security related to SmartGrid Projects (large and small, R&D and manufacturing)

- Money not yet spent or allocated.

5. Defense funding should not overshadow funding from other government agencies protecting large amounts of data: Veterans Affairs, HHS, Treasury

6. Be alert to market opportunities created by U.S. legislation in handling Cyber Security and Cyber War

7. Find the right Teaming Partner

8. Mergers & Acquisitions: Accelerate your Entry and Americanize your Company: Watch Reporting Rules under FINSA

9. Consider the Joint Venture/Teaming Arrangement Alternative, particularly in Government Contracts Field

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Steps for Success: U.S. Recovery Act Public Sector Projects

1. Feasibility Audit to best position your company

2. Identification of best opportunities under ARRA

3. Teaming Arrangements, JV or Strategic Acquisitions to maximize your access to Stimulus Act Projects

4. Legal guidance concerning application of WTO-GPA • Supply chain planning to avoid Buy American Act issues; or

• Representation of foreign companies in obtaining waivers of Buy American Act Provisions

5. Obtain advice after contract awards on compliance with government contract laws and regulations

6. Select advisory team to help your company finance, prepare for and close the deal if you are doing M&A, JV.

7. Consider support services for future business operations: financial, tax and accounting, legal, strategic.

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Steps for Success: U.S. Recovery Act Private Sector Projects

1. Feasibility Audit to assess your company’s technologies and match opportunities under Stimulus Act

2. Advice on available tax credits, guaranteed loans, grants and other financial incentives. If project is in the clean energy sector, consider potential impact of Carbon management, financing and “cap and trade”

3. Decide on use of Teaming Arrangements, JV or Strategic Acquisitions

4. Obtain advice on application of any Buy American Provisions tied to Stimulus Act incentives

5. Formulate business growth strategy

6. Select advisory team to help your company finance, prepare for and close the deal if you are doing M&A, JV.

7. Consider support services for future business operations: financial; tax and accounting; legal; strategic.

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Thank You & QuestionsThank You & Questions

Eliot Norman , Esq.International Partner

Wiliams Mullen

200 South 10th St.

Richmond, VA 23219

enorman@williamsmullen.comwww.williamsmullen.com

www.williamsmullen.com/government-contracts