Page 69 - The CFIUS Book

l Acknowledge the company’s obligation to comply with all industrial security program and export control requirements; and
l Certify that the foreign owner does not require, will not have, and can be effectively precluded from unauthorized access to all classified and export- controlled information entrusted to or held by the company.80
Where a foreign investor is willing to acquire only a passive, minority interest in a cleared U.S. company, the Board Resolution option offers a streamlined and uncomplicated approach to mitigating FOCI.
4.1.5.2. Voting Trust Agreement and Proxy Agreement
The Voting Trust Agreement and Proxy Agreement mitigation options are agreements that may be used when a cleared company is effectively owned or controlled by a foreign entity. They are arrangements whereby the foreign owner relinquishes most rights associated with ownership of the company to cleared U.S. citizens approved by the U.S. Government.81
WHErE a FOrEIgn EnTITy EFFECTIvEly OWnS Or COnTrOlS a ClEarEd U.S. COmpany, BUT IS WIllIng TO gIvE Up a SIgnIFICanT dEgrEE OF ITS COnTrOl OvEr THE ClEarEd EnTITy, THESE OpTIOnS arE THE lEaST BUrdEnSOmE FOr COmpanIES TO ImplEmEnT.
THE CFIUS BOOK
The Voting Trust Agreement and Proxy Agreement are substantially identical arrangements. However, under a Voting Trust Agreement, the foreign owner transfers legal title in the entity to trustees whereas, under a Proxy Agreement, the foreign owner’s voting rights in the entity are conveyed to proxy holders.82 The trustees or proxy holders under these agreements must be appointed to the cleared company’s governing board and assume full responsibility of the foreign owner’s voting interests and management over the cleared company.83
Under both arrangements, no restrictions are placed on the company’s eligibility to have access to classified information. However, the foreign investor must agree not to have any control over the cleared entity. In this respect, the trustees or proxy holders must have “complete freedom to act independently from the foreign owners, except as provided in the Voting Trust or Proxy Agreement”. Further, the cleared company “must be organized, structured, and financed so as to be capable of operating as a viable business entity independent from the foreign owner” so as to leave the foreign owner “insulated from the company”.84 Where a foreign entity effectively owns or controls a cleared U.S. company, but is willing to give up a significant degree of its control over the cleared entity, these options are the least burdensome for companies to implement.
69