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黄坊文
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1 and Due Diligence M&A in China

2 Prelude and Due Diligence

3 A Case For Proper A Gentleman s Agreement? 1 Respect for the Rule of Law in China mandatory under law?

4 CRITICAL DOCUMENTS is driven by deal structure: type of structure type of target investment vehicle Type of Transaction Key Acquisition Asset acquisition Sale and purchase agreement (sometimes known as asset acquisition agreement) 2 Equity interest acquisition Equity interest acquisition (by way of new subscription of equity interest) Sale and purchase agreement Subscription agreement

6 CRITICAL DOCUMENTS Type of Target Investment Vehicle Wholly-owned foreign enterprise Equity joint venture enterprise Co-operation joint venture enterprise Key Constituent Articles of association Joint venture contract Articles of association Joint venture contract Articles of association 3 Joint stock company Articles of association

8 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Requirements under law 4

9 5 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / What needs to be included in an S&P Agreement? Contracting parties List of assets Equity interest Acquisition completion procedures

10 Acquisition -Essential Terms and Conditions Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Rights and obligations Breach liquidated damages? 6 Dispute resolution Date and place of execution Governing law?

11 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 7 Representations and Warranties

12 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 8 Undertakings

13 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 9 Asset listing in the case of asset acquisition

14 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 10 Consideration, Payment/Capital Injection / Group structure in the case of equity interest acquisition

15 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 11 Indemnity / Compensation provisions /

16 Acquisition -Essential Terms and Conditions - Sale and Purchase / Acquisition Agreement ( S&P Agreement ) / Key Provisions in an S&P Agreement 12 Governing Law and Dispute Resolution

17 Acquisition -Essential Terms and Conditions - Subscription Agreement ( Subscription Agreement ) 13 Key differences between a Subscription Agreement and an S&P Agreement

18 Establishment -Essential Terms and Conditions Sino-Foreign Equity Joint Venture Contract Requirements under law 14

19 Establishment -Essential Terms and Conditions Sino-Foreign Equity Joint Venture Contract 15

20 Establishment -Chinese and English versions English and Chinese versions - which should prevail? - 16

21 Establishment - Total Investment Amount and Registered Capital Mandatory Ratios Total Investment Amount Ratio of Registered Capital to Total Investment Amount US$3 million > US$3 million but US$10 million 70% 5 0 % ( subject to a min. of US$2.1 million where total investment amount is less than US$4.2 million) 17 > US$10 million but US$30 million 40% (subject to a min. of US$5 million where total investment amount is less than US$12.5 million) > US$30 million 33 1 / 3 % (subject to a min. of US$12 million where total investment amount is less than US$36 million)

22 - 70% 50% % / 3 % 36 12

23 18 Establishment -Capital Injection - ---

24 Establishment -Essential Provisions Articles of Association Provisions closely track those in the Joint Venture Contract 19 Board composition and decision-making procedures

25 Establishment -Sino-Foreign Co-operation Joint Venture Special Features 20

26 Other Documents In the context of an acquisition Resolutions Audited financial report 21 Technical services agreement or technology transfer agreement (if relevant) Employees

27 Due Diligence Due Diligence an essential part of pre-negotiation preparation Why is due diligence essential? 22 Due Diligence

28 Due Diligence Scope of Due Diligence Due diligence can be broadly categorised into legal due diligence and financial due diligence The main focus of the legal due diligence 23 Due Diligence

29 Due Diligence Due Diligence Checklist 24 Due Diligence

30 Due Diligence Corporate Investigations Are these necessary and when do you obtain them? To what extent can the reports be relied upon? 25 Due Diligence Instructing the corporate investigators Securing Your Right to Documents and Information Typical issues and difficulties faced

31 Due Diligence Securing Your Right to Documents and Information Hiding behind the clout of confidentiality When all attempts fail 26 Due Diligence Beware of back-door qualifying of the representations and warranties through the use of Disclosure Letter What do you really need to know? Must-have vs. Good-tohave Determination often driven by availability of time, resources as well as size of the deal

32 Due Diligence Due Diligence Methodology Organising Your Team Organizing the Due Diligence Process 27 Due Diligence

33 Due Diligence Working Your Due Diligence Into Negotiation Pre-negotiation strategizing 28 Due Diligence

34 Due Diligence Working Your Due Diligence Into Negotiation Who is to draft? Purchaser or Seller? 29 Due Diligence Defensive Measures Key is to effectively use Representations, Warranties, Undertakings and Indemnities

Microsoft Word - Xinhua Far East_Methodology_gb_2003.doc

Microsoft Word - Xinhua Far East_Methodology_gb_2003.doc 新华远东中国资信评级新华财经有限公司上海远东资信评估有限公司新华远东中国资信评级 2003 年电子邮箱评级总监联系电话 rating@xfn.com 钟汶权 CFA 852-3102 3612 8621-5306-1122 目的新华财经有限公司与上海远东资信评