CSU Legal Advice Letter for Client Paper

The incident is between two American companies and a Chinese company, and I am the lawyer of the American company. The client wants legal advice on what is required in the form of the answer that I will send. The paper is required to be written according to the method of the sent format.

DOING BUSINESS IN THE U.S.A.
FALL SEMESTER 2022
Samarium Processing Corporation Case Study
1. Samarium Processing Corporation – Delaware/NYSE Company. Samarium Processing
Corporation (Samarium Processing) is a company incorporated under the laws of the State of
Delaware and headquartered in Denver, Colorado, and registered to do business in most of
the states of the United States of America. It is listed on the New York Stock Exchange and
is widely held by individual and institutional investors. Its latest financial statements are
attached.
2. Samarium Processing’s Business.
a. Samarium Processing is engaged in the processing and manufacturing of samarium metal
and supplying it to companies in the USA that use it in making samarium-cobalt magnets
and other items that are used in the electronics, microwave devices, electric transmission
equipment, and electric motors. Samarium Processing has developed methods for
processing ore to extract samarium and other rare earth metals that result in recovery of
those metals in concentrations that are many multiples higher than standard processing
methods. Samarium Processing’s methods are protected by various patents and trade
secrets. Presently in the USA, Samarium Processing is the only user of its proprietary
methods and it controls over 60% of the market for the supply of samarium.
b. Samarium Processing presently obtains ore from mining operations in the United States
and Canada, and its proprietary methods are designed for those specific ores. Samarium
Processing realizes that there are other countries in the world, such as China, that produce
more ores containing higher concentrations of samarium and other rare earth metals than
those of ores mined in Canada and the United States. It is in the process of developing
proprietary methods that will extract much higher yields of such metal from those foreign
ores.
c. Samarium Processing has very favorable long-term contracts for the chemicals and
equipment that it uses in its processing operations with many of its suppliers located in
Canada and the United States. These contracts have a provision in them that allows the
suppliers to terminate the contract in the event that Samarium Processing assigns or
attempts to assign the contact.
d. Samarium Processing manufacturing facilities use numerous hazardous chemicals in the
processing operations. On various occasions, there have been spills of certain of these
chemicals and Samarium Processing was obligated to report these spills to the United
States Environmental Protection Agency under the Resource Conservation and Recovery
Act and the Comprehensive Environmental Compensation and Liability Act. There are
on-going proceedings with respect to these matters and the US EPA is investigating the
extent of contamination of the soil and groundwater at these facilities.
e. Samarium Processing hopes to become the leading supplier of not only samarium but
also other rare earth metals in the United States as well as the other industrialized
countries of the world. Recently, the Departments of Commerce and Defense in the USA
have inquired of Samarium Processing about certain aspects of its processing methods as
potentially needing to be controlled for export purposes and as having use in military
applications.
f. 60% of Samarium Processing’s workforce are members of the United Mine Workers
(UMW). The UMW has traditionally opposed new ventures with foreign companies
because they have assumed U.S. jobs will be lost to non-U.S. workers. Samarium
Processing has a collective bargaining agreement with the UMW that requires that no
employee be required to travel or work outside the U.S. It also requires arbitration of all
disputes under the contract.
g. Samarium Processing has invested heavily in mineral processing and extraction
technologies and has an extensive research and development department. Samarium
Processing owns numerous patents and patent applications on various aspects of its
technologies in the US, Asia and Europe. Samarium Processing has not licensed its
technology to anyone outside of the USA. Samarium Processing also maintains much of
its technology as trade secrets which it has licensed to no one.
h. Samarium Processing also is developing methods that will allow the extraction of
samarium and other rare earth metals from products containing them that have reached
the end of their useful life. Samarium Processing wants to be the lead company in
recovering samarium and rare earth metals from discarded equipment and products.
i. Samarium Processing’s financial statements are attached and have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (GAAP).
3. Samarium Processing Officers and Directors.
a. The Chief Executive Officer (CEO) of Samarium Processing is Alexandra Mountain,
better known in the industry as “Extraction Sandy,” a title she acquired by her business
negotiation style of asking detailed questions and only accepting detailed answers. Her
insistence on obtaining detailed information has kept attorneys for Samarium Processing
very busy.
b. Her management decisions have also been matters of concern for Samarium Processing’s
Chief Financial Officer (CFO) Costus Cash, a timid man who tends to withhold his
opinions.
c. The Samarium Processing’s Board of Directors has nine members, including:
•
Alexandra Mountain, her sister and brother-in-law
2
•
Jim Acre, the CEO of a real estate company that leases space to Samarium
Processing for its corporate headquarters
•
Two childhood friends of Extraction Sandy, one of whom has a consulting contract
with Samarium Processing for occasional marketing assignments and
•
Three CEO’s from unrelated companies.
d. Alexandra Mountain is Chairman of the Board and Chairman of the Board’s Executive
Committee which also includes her sister and brother-in-law. The Board also has an
Audit Committee whose members include Jim Acre and Sara’s two childhood friends,
none of whom is a CPA or financial expert.
4. Rare Earth China Limited’s Business and President.
a. Rare Earth China Limited (Rare Earth China) is the largest samarium and rare earth
metals mining company in China. In fact, Rare Earth China has the most advanced
technology for mining ore containing rare earth metals. However, it uses standard ore
processing methods and as a result it extracts only a small percentage of these metals
from the ore that it mines.
b. Over 60% of the samarium used in China and India is supplied by Rare Earth China. Rare
Earth China has not yet entered the US or European markets but has an interest in doing
so.
c. Rare Earth China also realizes that the supply of samarium is limited and will soon not be
able to meet the worldwide demand for it. This is also true for other rare earth metals.
As a result, Rare Earth China believes that there is a business opportunity for being able
to efficiently reclaim samarium and other rare earth metals from products containing
them that have reached the end of their useful life.
d. Rare Earth China’s financial statements are attached. They have already been translated
from RMBs into U.S. dollars in accordance with U.S. Generally Accepted Accounting
Principles (GAAP).
e. Rare Earth China’s President, Jun Xiaoyang, is a former Colonel Commandant in the
People’s Liberation Army of China. While a Colonel Commandant, she was responsible
for the army’s research on using samarium and other rare earth metals in various military
applications. Jun Xiaoyang has a reputation of being very careful and not making
decision quickly. She also believes that Rare Earth China needs to expand its operations
into Europe and United States. She knows that the US Government is concerned about
foreign ownership of US technology and operations involving rare earth metals.
However, she would like to gain access to US and European markets by acquiring or
teaming with companies who have a strong position in those markets. She also believes
that Rare Earth China needs to establish a research center in the USA to keep its position
as a leading miner and processer of samarium and other rare earth metals.
3
f. Rare Earth China, when it started, received certain grants from the Central Government
of the People’s Republic of China that were used to design and purchase equipment used
in the mining and processing of samarium. That funding lasted for several years but
ended once Rare Earth China became profitable.
g. None of the shares of Rare Earth China are owned by the Chinese government. The
shares of Rare Earth China are traded on the Hong Kong Stock Exchange.
h. Jun Xiaoyang is also the sister of the First Assistant to the Chairman of the Central
Commission for Discipline Inspection.
5. The Proposed Transaction.
a. Alexandra Mountain would like to use its processing methods to extract samarium and
other rare earth metals from ores located in China and other countries in order to meet the
increasing demand of these metals worldwide. She realizes that there has already been a
lot of development of technology in China along these lines, particularly by Rare Earth
China. Extraction Sandy believes that the market for samarium alone extends into every
industrialized country in the world. Realizing that Rare Earth China is the largest
processor of samarium metal in the world, she would like to enter into some type of
cooperation agreement with Rare Earth China to use Samarium Processing’s technology
to extract samarium from the ores mined by Rare Earth China. She would also like to
develop recycling and reclaiming operations in the USA and China to increase the supply
of samarium and other rare earth metals. She would also want Rare Earth China to invest
significantly in this project.
b. Extraction Sandy believes she can entice Jun Xiaoyang to enter into a business
transaction with Samarium Processing by offering Rare Earth China with an entrance into
the US market for its samarium and other rare earth metals.
c. Concerned with mounting debt on Samarium Processing’s balance sheet, Alexandra
Mountain advises her CFO, Costus Cash, that she wants him to set up an offshore entity,
headed by Mr. Acres, to act as the holding company for the exclusive rights to license
technology to Rare Earth China for use in processing ore in China. Extraction Sandy
believes that royalties can be earned by that company and that the right to these royalties
could be used to secure a loan. She thinks that this loan would not appear on Samarium
Processing’s balance sheet as a debt, but that the ownership of this subsidiary would
appear as an asset.
d. If she can persuade Rare Earth China to enter into such a transaction, Extraction Sandy
believes Samarium Processing, through this arrangement, will secure its position as the
largest supplier of samarium in the U.S. and will be able to expand this position to other
countries in the world. She is convinced that a public announcement of the Samarium
Processing/Rare Earth China transaction will cause the price of Samarium Processing
shares to rise significantly. She therefore phoned her stockbroker and directed that as
soon as she notifies the broker that Samarium Processing has entered into a binding letter
4
of intent with Rare Earth China, the broker is to buy 500,000 shares of Samarium
Processing on the open market.
e. Further in the back of her mind, Extraction Sandy wonders if Samarium Processing or its
soon-to-be-formed offshore company can obtain favorable loans from Chinese banks or
financial institutions to finance international projects. She believes that Jun Xiaoyang’s
government contacts might be helpful in this regard.
6. Dinner and Advice.
a. You are in your law office in Cleveland when you receive a call from Alexandra
Mountain, stating that she would like you to represent Samarium Processing in her efforts
to structure and enter into a business deal with Rare Earth China. Extraction Sandy says
she would like to fly to Cleveland soon to have dinner with you to discuss the alternatives
available to Samarium Processing. She says she is a little confused whether the
transaction should be a supply agreement, a technology license, a joint venture,
partnership or simply a teaming arrangement with Rare Earth China in some manner. On
all of this, she would like your advice.
b. Following Extraction Sandy’s call, you receive a call from Costus Cash. He states that he
has heard you have been retained by Samarium Processing on the Rare Earth China
project. Costus expresses concern about Sara’s directive that he set up an offshore
subsidiary for possible use in this project and would like your advice as to how to
proceed. He ends the call by asking you not to tell Extraction Sandy that he placed the
call to you.
c. You decide that it would be a good idea to prepare a letter to Alexandra Mountain as
CEO of Samarium Processing that will explain the legal options available for a
transaction involving Samarium Processing and Rare Earth China and that will also
identify and explain some the major legal issues of concern that you have with respect to
the structure of the transaction. You intend to provide this letter to Extraction Sandy at
the end of your dinner with her. Get ready for your dinner with Extraction Sandy and
GOOD LUCK.
5
[Documents to be Separately Provided]
Financial Statements of
Samarium Processing Corporation
And
Rare Earth China Limited
6
[Your Law Firm Name]
[Date]
CONFIDENTIAL: ATTORNEY – CLIENT COMMUNICATION
[Client]
[Address]
Attention: [Name], Chief Executive Officer
Re:
Potential Business Transaction with [name of other company]
Dear [Mr./Ms.] ____________:
[Introduction]
[Potential structures for a transaction]
-License Agreement?
-Supply Agreement – Supply of Goods?
Distribution Agreement – look at the markets
Joint ventures – What form?
General Partnership – Unlimited Liability
Corporation
Shareholding
Board
Officers
Limited Liability Company
Membership interests
Management Structure
Board
Member managed
Something else
Merger and/or acquisition
Samarium Processing Corporation
[Date]
Page 2
Also list other legal issues that you identify
Export-Import issue
FCPA
Environment
Others – look at all the topics we have covered
[Conclusion]
Very truly yours,
[Attorney]