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investigation of the transaction. The President has delegated the authority to make investiga-
tions pursuant to the Exon-Florio Amendment to the Committee on Foreign Investment in the
U.S. (“CFIUS”), an interagency committee made up of representatives of various executive
branch agencies. Notifications of transactions are not mandatory and may be made by one or
more parties to a transaction or by any CFIUS member agency.

If at the end of the initial 30-day period after notification of a transaction, CFIUS decides that a
full-scale investigation is warranted, it then has an additional 45 days to complete an investiga-
tion and make a recommendation to the President with respect to the transaction. The
President then has 15 days in which to decide whether there is credible evidence that leads
the President to believe that the foreign interest exercising control might take action to impair
the national security. If the President makes such a determination, Exon-Florio empowers the
President to take any action which the President deems appropriate to suspend or prohibit the
transaction, including requiring divestment by the foreign entity if the transaction has already
been consummated.

U.S. law also places certain restrictions on acquisitions of businesses which require a facility
security clearance in order to perform contracts involving classified information. Under
Department of Defense regulations, foreign ownership may cause the Department to revoke a
security clearance unless certain steps are taken to reduce the risk that a foreign owner will
obtain access to classified information (DOD5220.22-R). Assuming that a foreign owner will be
in a position to “effectively control or have a dominant influence over the business management
of the U.S. firm,” the Department of Defense may require, as a condition to continuation of the
security clearance, that the foreign owner establish a voting trust agreement, a proxy
agreement or a “special security agreement” approved by the Department of Defense and
designed to preclude the disclosure of classified information to the foreign owner or other
foreign interests.

1.1.3 Reporting Requirements for Foreign Direct Investment

All foreign investments in a U.S. business enterprise which result in a foreign person owning a
10% or more voting interest (or the equivalent) in that enterprise are required to be reported to
the Bureau of Economic Analysis, a part of the U.S. Department of Commerce. Pursuant to the
International Investment and Trade in Services Survey Act (22 U.S.C. §§ 3101-3108) and the
regulations promulgated thereunder (15 C.F.R. § 806), such reports must be made within 45
days after the investment transaction. Depending on the site of the entity involved, quarterly,
annual and quinquennial reports may be required thereafter.

1.1.4 The International Investment and Trade in Services Survey Act

The International Investment and Trade in Services Act (“IITSA” or the “Act”), passed in 1976,
authorizes the President to collect information and conduct surveys concerning the nature and
amount of international investment in the U.S. The IITSA’s primary function is to provide the
federal government with the information necessary to formulate an informed national policy on
foreign investments in the U.S. It is not intended to regulate or dissuade foreign investment but
is merely a tool used to obtain the data necessary to analyze the impact of such investments
on U.S. interests.

Under the IITSA, international investments are divided into two classifications – direct invest-
ments and portfolio investments. Congress has delegated its authority to collect information on
both types of international investments to the President. In turn, the President has delegated

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