MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) VICTOR KIPIANI, PARTNER Business Club Belgravia

1. MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) VICTOR KIPIANI, PARTNER Business Club Belgravia 29 March 2012, Kyiv, Ukraine Practical Tips for Investing Safely in Georgia

2. Practical Tips for Investing Safely in Georgia CONTENTS • Know the Country • Know Your Rights and Guarantees • Liberty Act • Know Which Corporate Forms to Choose: Entry to Georgian market • Know your Local Partner • Know How to Enter Georgian Financial Sector • Know More on Protecting Your Investments • Know Your Counsel 2

3. Practical Tips for Investing Safely in Georgia 1. KNOW THE COUNTRY Addressing a risk of failure due to lack of understanding a local culture It is NOT just about identifying Georgia’s location on the map, BUT having a knowledge on: Avoid clichés you got used when doing business in your home country or other countries Create a solid pre-condition for making your business successfulin Georgia–thecountry with the old historical heritage and traditions • Cultural Perceptions • Networking Standards • Social Attitudes • “Operational Code” 3

4. Practical Tips for Investing Safely in Georgia 2. KNOW YOUR RIGHTS AND GUARANTEES • Georgian investment law provides with the highest • standards of investment protection • The major guarantees by Georgian investment law are: • UNLIMITED ONWRESHIP: foreign investments in • Georgia may be made in any form of ownership; • NO REGISTRATION procedures for the foreign • investments; • NATIONALTREATMENT: a foreign investor’s rights and • guarantees are no less than rights and guarantees • enjoyed by Georgian individuals and entities; • FREE ACCESS TO ACCOUNTS:aninvestorisentitledto • openANY accountsin ANY currency (besides,toborrow • moneyfromGeorgianbanking/financial institutions;to • acquirestocks,bondsandother securities and property; 4

5. Practical Tips for Investing Safely in Georgia • FREE REPATRIATION: an investor is entitled, upon • payment of all taxes and levies, to convert profit, • income, and compensation at the market exchange • rate,andhastherightof unlimited repatriation abroad • and there are no restrictions on outflow of the capital; • NO ARBITRARY EXPROPRIATION: expropriation is • possible only via court decision, or in certain • circumstances explicitly specified by law (e.g., public • needs) but subject to compensation (compensation • must correspond to the actual value of investment • at the time of expropriation; it must be paid without • delay, and include any damage suffered by investor • from expropriation date until date of compensation • payment); KNOW YOUR RIGHTS AND GUARANTEES 5

6. Practical Tips for Investing Safely in Georgia • FREE EXPORT of property owned by investor; • NOminimumnumberofGeorgian nationalstoelected/ • appointed to run a company; • A DISPUTE betweena foreigninvestorand a Georgian • counterparty may be resolved in accordance with • whatever dispute-resolution mechanism is specified • in respective agreement; • Admission for seeking redress through international • arbitration; • Bilateral Investment Treaties (BIT) with 32 countries • (at June 1, 2011); • Bilateral Double Taxation Avoidance Treaties (DTT) with 36 countries and drafts DTT are currently • negotiated with 22 countries (at March 20, 2012). KNOW YOUR RIGHTS AND GUARANTEES 6

7. Practical Tips for Investing Safely in Georgia 3. LIBERTY ACT • Special law (effective from December 31, 2013) providing • for extra investment stability leverages • Capping government discretionary spending: • Liberty Act: analogue to EU fiscal order salvage program? • 3% cap on the budget deficit (subject to a 2 year grace • period) • limiting government spending to ensure it does not • exceed 30% of GDP • state debt not to exceed 60% of GDP • requirement to hold referendum to raise taxes/ • introduce new taxes (exceptions are for “temporary” • increase of taxes, i.e., not more than 3 years) 7

8. Practical Tips for Investing Safely in Georgia 4. KNOW WHICH CORPORATE FORMS TO CHOOSE: ENTRY TO GEORGIAN MARKET • Typical corporate options to enter a Georgian market are: • Setting up a Georgian company or branch office • Acquisition of shares in a Georgian company • Setting up contractual joint venture with a Georgian • counterparty on a contractual basis 8

9. Practical Tips for Investing Safely in Georgia Business Vehicle Setting up a Georgian business vehicle (e.g., partnership, limited partnership, limited liability company, joint stock company) The most widely used Georgian business vehicles are: limited liability company (a “Georgian SPV”) and joint stock company: no minimum charter capital speedy registration (on a same or next day)/availability of on-line registration no need for legalization with all countries members to the 1961 Hague Convention on apostille (the only exception is Greece insofar) ENTRY INTO GEORGIAN MARKET 9

10. Practical Tips for Investing Safely in Georgia • publicity of access to corporate information on-line • strong emphasize on significance of charter • (shareholders’ agreement is also an extra option) • Statutory Protection for Minority Shareholders’ Rights/ Mandatory Tender Offer/Mandatory Redemption • Disclosure requirements for “significant acquisition” (more than 10%) in public joint stock companies • NO special Georgian M&A related Georgian law (most of • M&A deals are addressed through various pieces of • legislation, e.g. theLaw on Entrepreneurs, the Civil Code, • the Privatization law (in case of privatization only) • various sector-focused special laws) ENTRY INTO GEORGIAN MARKET 10

11. Practical Tips for Investing Safely in Georgia • NO special thresholds and/or statutory limits for foreign investors holding shares in Georgian companies • NO statutory concept of “strategic objects” (as similar • concept is familiar under various other jurisdictions) • NO antimonopoly restraints/filings except that the regulatory approval is required in course of: ENTRY INTO GEORGIAN MARKET • acquisition of shares in bank • acquisitionsof sharesin telecom companybyGeorgian authorized entity or when two Georgian authorized entities transact with each other • significant shareholding in insurance company. 11

12. Practical Tips for Investing Safely in Georgia • Application of MOU and/or letter of intent is widely • recognized (the concept of promissoryestoppel) • A Georgian limited liability company, i.e., a Georgian • “specialproject vehicle” is commonly used; an • alternate approach is using off-shore SPVs and/or SPVs • from jurisdictions having BIT with Georgia ENTRY INTO GEORGIAN MARKET 12

13. Practical Tips for Investing Safely in Georgia 5. KNOW YOUR LOCAL PARTNER • A need for due diligence exercise is commonly recognized • by Georgian counterparties • Corporate checks and checks on real estate are greatly • facilitated through on-line access to electronic data • registries 13

14. Practical Tips for Investing Safely in Georgia Principal On-line Electronic Databases: 1. Contacting the Public Registry for information on: • real assets owned by company • real assets possessed by company • real assets leased/rented or otherwise given under • possession to third party by company • real assets encumbered by company (mortgage, etc.) • assets pledged by company • any credit agreement made by company with bank or • any other third party (provided that such credit • agreement is secured by mortgage and/or pledge) KNOW YOUR LOCAL PARTNER 14

15. Practical Tips for Investing Safely in Georgia 2. Contacting the Entrepreneurial Registry for information on: • registration documents of company (charter, protocols, • etc.) • partners / directors and/or any authorized • representatives of company (information on partners, • however, is not publicly available if company exists as • joint stock company) • share purchase agreement(s) and respective • registration details • liquidation proceedings on company, if any • insolvency proceedings on company, if any • rehabilitation proceedings on company, if any KNOW YOUR LOCAL PARTNER 15

16. Practical Tips for Investing Safely in Georgia 3. Contacting the Debtors’ Registry for information on: • execution (bailiff) proceedings versus company; • registration with the Debtors’ Registry and registration • details, if any KNOW YOUR LOCAL PARTNER 16

17. Practical Tips for Investing Safely in Georgia 4. Contacting the Registry on Seizure and Public Law Restrictions and/or Tax Pledge/Mortgage for information on: • court seizure or any similar restrictions on immovables • and/or movables of company; • tax obligations, if any, with respect to immovables • and/or movables of company. KNOW YOUR LOCAL PARTNER 17

18. Practical Tips for Investing Safely in Georgia 6. KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR • The concept of a “financial institution from a developed country”, whereby a financial institution (except of a commercial bank) from a developed country is authorized to carry out its activities in Georgia without any additional authorization under Georgian law • The term of “developed countries” actually covers the EU member states, US, Canada, various countries of the Persian Gulf, some others • Shares listed on a ”recognized foreign stock exchange” are admitted on the Georgian Stock Exchange without application of local regulations to such admission and for purposes to list such shares a mere notification to the NationalBankofGeorgiasuffices (various stock exchanges of more than 100 countries are admitted as ”recognized foreign stock exchanges”) 18

19. Practical Tips for Investing Safely in Georgia • Admitting for OTC trade with respect to stocks listed • as well on the Georgian Stock Exchange • Role of Global Depository Receipts: recent successful • cases of applying GDR for fund-raising purposed • Admissibility of regulated and non-regulated • investment funds: however,thelaw is understoodtobe • governing their activities with regard to trade with • public securities only • The term of “financial institution” excludes banking • institutions, however, a banking institution from a • developed jurisdiction, rated as a “reputable bank”, • enjoysvarious privileges (e.g., limitedsetofdocuments) • when applying for regulatory approval for setting up a • branch office in Georgia KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR 19

20. Practical Tips for Investing Safely in Georgia • Regulatory approval for banking shares acquisition by a buyer (i.e, a “reputable bank”) is granted through rather straightforward procedures with the National Bank of Georgia (NBG) and NBG is obliged to grant the approval within one month from submitting the • required request • A non-Georgian insurer may engage into direct • insurance activities in Georgia through setting up a Georgian branch office only and further provided that a non-Georgian insurer shall be duly registered and licensed under any jurisdiction of any of the Member States of the Organization for EconomicCo-operation • and Development (OECD) KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR 20

21. Practical Tips for Investing Safely in Georgia • Such branch,assetupbyanon-Georgianinsurer,registered • and licensed under any of OECD jurisdictions, is not • required to be licensed by the National Bank of Georgia • (subject to maintaining at all times of its activities with a • Georgian commercial bank a deposit of local or foreign • currency and/or securities which amount up to minimum • capital requirements of a Georgian law licensed insurer) • Minimum Charter Capital Requirements: KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR • life insurance: Gel 1.500.000 • insurance (other than life insurance): Gel 1.000.000 • reinsurance: Gel 1.500.000 21

22. Practical Tips for Investing Safely in Georgia 7. KNOW MORE ON PROTECTING YOUR INVESTMENTS • Governing law: • Use of non-Georgian law is admitted and widely recognized • in the context of Georgian transactions. • A choice of law is covered by the Law of Georgia on Private • International Law which provides that where the parties may • choose the law of one of their countries. A reference to other • country’s law (a third country is also meant) means application • ofthiscountry'sprivateinternationallawaswellifthisreference • does not contravene the reference idea or this reference is not • restricted with the operation of norms associated with a given • case. The law provides for certain restrictions in applying • foreign law by stating thatchoice of law wouldonly beupheld if • thisdoesnotcontradictmajorlegal principles ofGeorgia (Public • Order) or derogates from imperative norms of legislation • regulating the similar legal activities (irrespective the law of • which country shall be applied in governing specific relations).    22

23. Practical Tips for Investing Safely in Georgia • Otherwise, the parties may freely choose the law of one • of their countries or the  law of a third state. In such • case, definition of rights and obligations stemming from • contractual relations, in particular, interpretation, • implementation, suspension of agreements, as well as • invalidation of legal consequences, violation of • obligations, including violation of pre-contractual and • post-contractual obligations, shall be governed under law • of the country selected by the parties • Since 1994, Georgia is participant to the United Nations • Convention on the Recognition and Enforcement of • Foreign Arbitral Awards, New York, 10 June 1958 • Foreign Arbitral Awards are recognized and enforced by • the Supreme Court of Georgia. KNOW MORE ON PROTECTING YOUR INVESTMENTS 23

24. Practical Tips for Investing Safely in Georgia • The Supreme Court of Georgia must be furnished with the Arbitral Award (original or certified copy) as well as with the arbitrational agreement – original or certified copy of Foreign Arbitral Award, for recognition and enforcement purposes • Recognition and enforcement of Foreign Arbitral Awards shall be admitted within 10 years following delivering the award • Absolute majority of foreign arbitral awards are • recognized by the Supreme Court of Georgia. KNOW MORE ON PROTECTING YOUR INVESTMENTS 24

25. Practical Tips for Investing Safely in Georgia 8. KNOW YOUR COUNSEL • Select a proper counsel: this is something which is of • MUST for successfully navigating in Georgian business • environment • Is Mgaloblishvili Kipiani Dzidziguri (MKD) a proper counsel • for your business needs? Please consult with various • recognized legal directories and see our list of • representative matters • Mgaloblishvili Kipiani Dzidziguri • www.mkd.ge • Georgian (Tbilisi ) contacts: Victor Kipiani vkipiani@mkd.ge • t: + 995 32 2553880/81, 2973880/81 | f: + 995 32 2973884 • UK (London) contacts: Zannis Mavrogordato zm@12graysinn.com ; zmavrogordato@mkd.ge • t: + +44 20 7067 1964, | f: +44 20 7183 6443 • German contacts : RatiBregadze • rbregadze@mkd.ge • t: + 995 32 2553880/81, 2973880/81   | f: + 995 32 2973884 25