Luận văn legal procedures and foreign restrictions on conducting a merger and acquisition m và a transaction in the vietnamese laws

CIIAPTER 2: LEGAL PROCEDURES TO CONDUCT AN M&A TRANSACTION AND FOREIGN RESTRICTIONS ON M&A IN VIETNAMESE LAWS 2.4 Legal due diligence 2.1.1 Role of a legal due diligence Yollowing the

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF LAW

TILAN THU TITAO

LEGAL PROCEDURES AND FOREIGN RESTRICTIONS ON

CONDUCTING A MERGER AND ACQUISITION (M&A)

‘TRANSACTION LN THE VIETNAMESE LAWS

UNIVERSITY GRADUATION TIIESIS

MAJOR: BUSINESS LAW

Type of Training : Full-time Course

Ha Noi - 2018

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF LAW

THAN THU THAOQ

LEGAL PROCEDURES AND FOREIGN RESTRICTIONS ON

CONDUCTING A MERGER AND ACQUISITION (M&A)

TRANSACTION IN THE VIETNAMESE LAWS

UNIVERSITY GRADUATION THESIS

MAJOR: BUSINESS LAW

Type uf Training : Full-time Course

Supervisor : PhD Phan Thi Thanh Thuy

Ha Noi - 2018

CERTIFICATE OF AUTHORSHIP/ORIGINALITY

I hereby declare that this Graduation Thesis is of my own and

instructed by PhD Phan Thi Thanh Thuy It has not been previously

submitted for a degree or diploma at this or any other higher education

institution To the best of my knowledge and belief, this Graduation

Thesis contains no matcrials previously published or wrillen by another

person except where due reference or acknowledgement is made

I bear full responsibility for the fidelity of the number and data and

other contents of my graduation project

Sincerely thanks!

Hanoi, 03" April 2018

Signature of Bachelor Candidate

Than Thu Thao

ACKNOWLEDGEMENT

In working through this Thesis, I would like to express my sincere

gratitude to PhD Phan ‘hi Thanh ‘Thuy, who has given me invaluable

instruction

I greatly approcialc Department of Business Law, School of Law,

Vietnam National University for facilitating my thesis

‘My greatest (hanks also go to my family, my supervisors at Violnam

International Law Firm (VILAF Hong Duc) and my dearest friends, who

always stand by and support me

ABBREVIATIONS

BOM Board of Management

BRC Business Registration Certificate

DPI Department of Planning and Investment DICA Direct investment capital account

EIAR Environmental impact assessment reports

ERC Enterprise Registration Certificate

Fils Foreign invested enterprises

ICCA Indirect capital contribution account

M&A Morger and Acquisition

MOU Memorandum of understanding

GSM General Shareholders’ Meeting

NRAST National Registration Agency For Secured Transactions

‘Thesis Graduation ‘Thesis on Legal procedures and restrictions

to conduct an M&A transaction by Doreign inveslors in

ihe Vicinamesc laws US$ United States dollar, the lawful currency of the United

States of America

R&Ws Representations and Warranties

VCA Vietnam Competition Authority VND Victnamesc Dong, the official currency of Victnam

TABLE OF CONTENTS CERTIFICATE OF AUTHORSHIP/ORIGINALITY

1.1 Definition of Mergers and Acquisitions

1,2 The Differences between Mergers and Acquisitions

1.3 Role of M&A activities

CHAPTER 2: LEGAL PROCEDURES 10 CONDUCT AN M&A

TRANSACTION AND FOREIGN RESTRICTIONS ON M&A IN

2.1.2 Matters to be covered in a legal due diligence 11

2.1.4 Difficulties in conducting legal due diligence in Vietnam 22

2.2 Preparing M&A agrocment and the related Jogal documents 23

2.2.1 Yypical clauses in an M&A agreement

2.2.2 Case study: WOLF Acquires RABBIT

2.2.3 Restrictions for foreign investors on negotiating the M&A

CHAPTER 3: SOME RECOMMENDATIONS FOR IMPROVING

VIETNAMESE LEGAL FRAMEWORK ON M&A AND FOR

FOREIGN INVESTORS IN AN M&A TRANSACTION - 50

3.1 Improving the legal framework for Mergers and Acquisitions in

3.2 Delermining the valuc of M&A lransactians - 52

INTRODUCTION

1 Necessity of the thesis

Since Vietnam joined the WTO and most recently TPP and ASEAN

Economic Community, Merger and Acquisition (“M&A”) market in Vietnam

has witnessed a remarkable change Many investors consider Vietnam to be

an ideal investment destination thanks to the strong annual growth economy, and the underlying factors contributing to that growth, namely a stable

political system, an affordable and dynamic workforce, low wage economy,

etc Key sectors of interest include real estate, food and beverage, retail, and

to a lesser extent, manufacturing By 2015, the total value of M&A deals was

US$5.2 million, and in the first seven months of 2016, the figure significantly

climbed to USS8.2 million 2016 and 2017 were recognized as boom years for

M&A in the appearance of billwn-LSD-worth deals, namely Thailand's

Central Group's acquisition of Big C Vietnam for $ 1.14 billion; ‘Thai

Beverage spending US$4.8 billion to acquire Sabeco' s $3% of shares

However, conducting an M&A deal is nol casy, resullig in the fact

that approximately 50% of M&A deals fail An M&A deal is considered to be

successlul when the parlics shall not only achieve their linancial and

commercial goals but also allocate the risks by means of concentrating on all legal aspects My prevailed research question for this Graduation Thesis on

Tegal procedures and foreign restrictions on conducting an M&A in the

Vietnamese laws (“Thesis”) is straightforward: how many steps shall the foreign investors undertake in an M&A transaction and what should they be

aware of Vietnamese legal framework’s restrictions on M&A? When

investors wish to invest into an offshore country, other than potential aspects

in market, the exisling foreign ownership restrictions and conditions

applicable to the foreign investors have been the most significant factors

impacling upon deal structures in Viclnam The cost and lime which is

considered to be twa success points in business will be taken into account if”

the investment procedures are diffusive This Thesis hereby may help the

forcign mvestors targeting Vietnamese market choose a method of investment

in the consideration of expenditures and term In addition, legal aspects in the

process of an M&A transaction will be discussed as well in order for the

investors to know exactly what they have to do after having chosen M&A

method

2 Literature Review

M&A in general, steps to carry out an M&A transaction in particular as

well are not unfamiliar issues but how a foreign investor gets through the

foreign resticuions in Vicinamese laws to successfully close Lhe deal still

remains curiosity and needs to be taken into account We can list out the

following articles and researches by both lecturers and lawyers on the

aforesaid iss 10S

- Article “Vietnamese M&A, by the book”, Hoang Anh Nguyen, Pariner at law firm Mayer Brown JSM 2017;

- Article “Choosmg M&A investment to avoid lengthy license of

the foreign investors’, Lawyer Dinh Tien IIoang and Than Thu Thao, 2017:

- Book “The mergers & acquisitions revicw — Edition 11”, Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc, Partners at Nishimura & Asahi, 2017;

- Article “Some Recommendations of M&A Activity in Viemam

Today”, Phan Quan Viet, Falcuty Business Management, Sai Gon University,

2015,

- Article “Public mergers and acquisitions in Vietnam: overview”,

Oliver Massmamn, Iaane Morris Vietnam LIC, 2017,

- Book “Mergers & acquisitions: A step-by-siep legal and practical

guide”, Edwin T Miller Jr., 2007;

- Mergers & acquisitions from A to Z, Second Edition, Andrew J Sherman and Milledge A Hart, 2006,

nhìn quản trị céng ty”, Assoc Prof., PhD Pham Duy Nghia, School of Law,

Economic University, Ho Chi Mimh City, 2011,

- Article “Mergers and acquisitions in Vietnam pitfalls and

resolutions”, Le Net, Partner al LNT & Partners and Arbitrator al the Vielnam

International Arbitration Centre, 2014;

- Article “As M&As rise, legal issues pose challenge, Dang Duong

Anh, Managing Partner al Vietnam Intemational Law Firm, 2016;

- ‘Ten key M&A legal issues for foreign investors in Vietnam; Linh Bui, Robert Fish and Bill Magennis, Partner of Allens and Linklaters, 2017

The papers and publications mentioned, however, focus principally on

M&A legal issues from a general perspective Innovations in the national

logislation are cvident in the attcmpis of Vietnam Lo comply with the international M&A provisions However, there is not yet a comprehensive

study of Vietnam’s compliance of detailed legal procedures in an M&A

transaction and Victnamesc laws’ restriction Attempting to cover that gap

and aiming to help to attract both foreign and domestic investments in line

with intemnational standards, this Thesis makes an contribution to the field

with an assessment of the “Legal procedures and foreign restrictions on

conducting an M&A transaction in the Vietnamese laws”

3 Research Objective

Vietnam continues to attract foreign investment Apart from via direct

investment, the foreign investors also achieve market access by way of M&A,

both onshore in Viclnam and offshore when there are existing foreign investors However, during the formulation of the deal structure, parties often

overlook the closing and post-closing steps, which contain significant risks

from both logal and financial perspective Having a roadmap for the transaction at an early stage will prepare a potential purchaser for what to

expect during a transaction If the proposed structure does not work, then be

flexible in considering alternatives ‘The ‘Thesis will point out a typical

“goadmap” for investors, especially foreign investors to carry out an M&A

transaction, including legal procedures and notices of legal framework

restriction in Vietnam

4 Research Scope

This Thosis will focus on legal basis and practice of undortaking

Vietnamese laws in each step of an M&A transaction Moreover, this

Thesis will point some remarkable notices that the foreign investors must

lake when they wish to indircelly mvesi into Vietnam Accordingly, some

recommendations and solutions will be praposed to perfect the legal

frame regulating upcoming M&A transactions and [acilitating the forcign

investment market but still protecting domestic enterprises

5 Research Methodology

The following methods are applied in this Thesis

Firstly, Data analysis is used to interpret statistical information to discover the pattern and trend of M&A in Vietnam, providing a contextual

background for the understanding of legal aspects of M&A;

Secondly, Conient analysis is employed systematically to examine

the particular bady of Vietnamese laws and regulations;

Thirdly, the Comparative method plays a significant role im this

Thesis to contrast Vietnamese domestic legislation with intemational

slandards enables the điscovery o[ rcbdive srcngths and wcskncsscs in the Vietnamese legal framework for M&A in carrying out those standards

6 Thesis structure

There includes 04 main parts in the Thesis

- Chapter 1: ‘The concept of M&A;

- Chapter 2: Legal procedures to conduct an M&A transaction

and foreign restrictions in Vietnamese laws;

- Chapter 3: Some recommendations for improving Vietnamese

legal framework on M&A and for foreign investors in an M&A

transaction;

CIIAPTER 1: TIIE CONCEPT OF MERGER AND ACQUISITION

1.1 Definition of Mergers and Acquisitions

The terms “merger” and “acquisition” (M&A) are often confused or used inter-changeably lt is umportant to understand the differences between two English words of merger and acquisition M&A activity is to gain the

control of a business through the ownership of a portion ar the whole of that business M&A seems to be a phrase pronounced together, with the same meaning, but in fact they have different characteristics and we need to

understand between merger and acquisition:

- Merger: A combination of Lwe or more companies in which the

assets and liabilities of the selling firm(s) are absorbed by the buying

firm Although the buying firm may be a considerably different organization after the merger, it retains its original identity,

- Acquisition: The purchase of an asset such as a plant, a division, or even an entire company

On the surface, the distinction in meaning may not really matter, since the net result is often the same: two companies (or more) that had separate

ownership are now operating under the same roof A merger typically refers

to two companies joining together (usually through the exchange of shares) as peers to become one An acquisition typically has one company - the Buyer - that purchases ihe asscls or shares of the Soller, with the form of payment being cash, the sccuritics of the Buyer, or othor asscis of valuc to the

Seller In a stock purchase transaction, the Seller’s shares are not

necessarily combined with the Buyer's existing company, but often kept

' David L Scoll, Wall Siree! Words: An A lo Z Guide to Lavestment Terms for Today's Imesior

scparalc as a new subsidiary or operating division In an asset purchase

transaclion, the assets transferred by the Seller to the Buyer become

additional assets of the Buyer’s company

1.2 The Differences between Mergers and Acquisitions

Frsily, in the form of implementation

For the merger, the merged business shall transfer any and all assets including but not limited to business locations, employees, etc to the merging enterprise On the other hand, not necessarily all of aforesaid assets in the acquisition activity shall be transferred Relying on acquisition’s size,

sometimes only a part of the business assets being acquired have aggregate assets of acquired businesses

Secondly, the nature of transactions

Merger can be understood as the lwo or more businesses nature

cuoperaling and consensus linking inlo an cnlerprise to bring in one benelits

and reputation, which attracls huge range of contractors and customers

Tlowever, in fact, the majority of deals are usually very difficult to achieve consensus between the parties? As for acquisitions, one business, which prevails, acquires another business to take control of the acquired business

Thirdly, the legal consequences

For the merger transaction, after legal registration at the competent business registration authority, the merged business shall terminate its

operation; while merging will now enjoy the rights and obligations of the merged enterprise (i.e paying for unpaid debts, continuing the employment contracts and other property obligations, ote.) Mcanwhile, after the

* Phan Quan Viet, Falcuty Business Management (2015), Sai Gon University, 2013, Some Reconmendenions

Of M&A Activity in Vietnome Todey, hilps://goo.g/SKoCHq

acquisition agrecment comes into cilecl, the acquired busincss shall only

terminate partially operations to the acquired parls, and concurrently the acquired businesses shall be entitled to the rights and legitimate interests, and

obliged for unpaid debts and loans, employment contracts and other property obligations of the acquired businesses.>

1.3 Rele of M&A activities

Generally speaking, M&A plays an important role for all parties involved It cannot be denied that M&A helps large enterprises decrease costs

in investment and support the small enterprise handle with bankruptcy risk It

also encourages new businesses to grow and gain competitive advantage in the marketplace

Tn the context of new business cnvironment which always request enterprises to got adapted and raisc compelilive advantage, M&A is a solution

for businesses that are making losses to help them avoid chronic losses Even

with enterprises operating normally, they choose M&A as a way lo expand

the scale and market, increase business opportunities, and obtain market share from competitors It can be explained that M&A helps enterprises attract more

capital (ie the stock market) to build up a strategic partnership with customers, increase long-term value by capacity of management, good human resources, technological know-how combined with the existing distribution

system of the Buyers."

From investors’ perspective, in replacement of establishing a new

enterprise, M&A is an effective way to step into the market quickly without

3 Phan Quan Viel, Falculy Business Management {2015}, Sai Gon University, 2015, Some Recommendations

of M&A Activity in Vietnem Tacky, https:/!goo 2USKoCHq

‘Phan Quan Viet, Palcuty Business Management (2015), Sai Gon University, 2015, Some Reconmendenions

OF M&A Activity in Vietnome Today, hilps://goo.g/SKoCHq

spending cost and time for logal procedures, For newly-incorporated

enterprises, M&A is such a choice to accumulate strength and reduce their costs (Le culling redundant and weak staff and raising labor productivity) On

the large scale, a favorable position of newly-incorporated enterprise is a plus point when negotiating with partners, expanding marketing channels, and

distribution system?

5 Anonymous (a.d.) The Art of M&A: A Merger Acquisition Buyout Guide (3°).

CIIAPTER 2: LEGAL PROCEDURES TO CONDUCT AN M&A

TRANSACTION AND FOREIGN RESTRICTIONS ON M&A IN

VIETNAMESE LAWS

2.4 Legal due diligence

2.1.1 Role of a legal due diligence

Yollowing the preparations of both Seller and Buyer, the narrowing of

the field, and the execution of negotiation, both sides must begin preparing for

the due diligence process This process involves a legal, financial, and

stralegic review of all of the Seller's documents, contractual relationships,

operating history, and organizational structure ldue diligence is not just a process, it is also a reality test - a test of whether the factors driving the deal

and making it look attractive to the parties are real or illusory.® The Scller’s

team shall organize the documents, and the Buyer’s team must be prepared to

ask all of the nght questions, thereby conducting a detailed analysis of the

documents provided The legal duc diligence mostly concentrates on the

potential legal issues and problems that may serve as key points to the

transaction, as well as red-flags on how lo structure the lransaclion documents

A diligence process is set out to answer the vital questions, and ensure

with reasonable warrantics that the Seller’s claims about the business are fair and accurate Information will be revealed, which answers why broad representations, warranties, liability holdbacks, and indemnification

provisions should be input into the ñnal M&A agreement Hffective due

diligence is both an ari and a science.’ The art is the style and experience to

8 Andrew J Sherman and Milledge A Hart (2006), Mergers de acquisitions from A to

7 Andrew J Sherman and Milledge A Tart (2006), Mergers && acquisitions,jrom A to 2, Second Daition,

Page 66

know which questions lo ask and how and when to ask them In this sense, the

due diligence team is looking for potential problems and liabilities, and

finding ways to resolve these problems prior to closing and/or to ensure that

risks are allocated after the closing The preparation of duc diligence makes it

be a science that the comprehensive and straightforward checklists of

interview questions to be presented to the Seller, in maintaining a methodical

system for quantitatively assessing the risks raised by those problems

discovered The legal due diligence checklist in the following section is

intended to guide the company’s management team while il works closely

‘with counsel to gather and review all legal documents that may be relevant to

the structure and pricing of the transaction

2.1.2 Matters te be covered in a legal due diligence

ln analyzing the company for sale, the Buyer's team carefully reviews

and analyzes the following legal documents and records, where applicable

2.1.2.1 Corporate documents and Incorporation mattors

Corporate records of the Seller includes: (i) Enterprise registration

certaficale/Business registration certificate/imvestment registration certificate

(f any}investment certificate (if any) and all of their amendments,

supplements and renewal from time to time of the Target Company issued by

licensing authoritics ¡in Vietnam; (ii) Valid charter, joint venture

contracts/agreements and all amendments or supplements of the Target Company and its subsidiaries; (iii) Meeting minutes and resolutions on

appointment of the general directors and chairman/members of board of

management (“BOM”) of the Target Company and its subsidiaries, (iv)

Organizational chart of the including but not limited Lo list of members of the

BOM of the ‘Target Company and its subsidiaries, list of general

director/director, deputy general directors/deputy directors, the chief

accounlant and, if available, the chic! lmancial ollicer of the Target

Company and its subsidiaries, list of members in the inspection committee (or

controllers) together with all relevant appointment letters and/or appointment

decisions issued by competent corporate body of the Targct Company and its

subsidiaries to those members, (v) Minutes and resolutions of the BOM and

the General Shareholders’ Meeting (‘GSM”) of the Target Company and its

subsidiaries, (vi) Seal registration certificate and tax code registration

certificate of the Target Company and its subsidiaries as has been issued to

the Target Company/its subsidiaries from time to time, (vii) List of

subsidiaries, branches, business locations, representative offices of the ‘Target

Company and their incorporation licenses; (viii) All other currently effective

certificatss, licenses, permits, authorizations, operational capacity

certifications, conditional business certificates, practicing licenses, or other

governmental approvals issued to the Targel Company/its subsidiaries and

their employees as neces

ary for the Target Company and ils subsidiarics to

conduct its business activities; (ix) Any and all other constituent documents of

the Target Company; (x) Periodical reports on projects implcmentations of the Target Company submitted to the relevant State authorities, (xi)

Shareholders’ registration books, shares certificate and documents proving the

completion of the capital, (xi) Any agrocments relating to management,

control, distribution of dividends, exercise of voting nghts, and transfer,

subscription of equity interest, currently effect, in the Target Company and its

subsidiaries, (xiii) Any valid agreements restricting transfers of the equity

interest of the Target Company and its subsidiaries; (xiv) Documents

evidencing the capital contribution amount of each shareholders to the Target

Company and its subsidiaries, such as bank slips for in-cash capital

contributions, bank confirmation on in-cash capital contributions, agreements

in relation to m-kid capHal contribulon andor the similar, (xv) All agreements and documents regarding capital transfers of shareholders, if

available, in the Target Company and its subsidiaries; (xvi) Details on any

increase and/or decrease in the charter capital of the Target Company and its subsidiaries, and/or changes in capital holding structure of the ‘Target

Company and its subsidiaries, (xvii) Any and all agreements or arrangements

on mortgage, pledge or other security over shares in the ‘Target Company and

its subsidiaries

2.1.2.2 Accounting and Financial malters

It shall contains the following sections: (i) All audited financial

statements and latest interim financial statements of the Target Company and

its subsidiaries, (it) List of cxisting bank avcounls of the Target Company

(mecluding both domestic and offshore accounts; VND and foreign currency

accounts} and the approval for the opening of uffshore bank accounls and

regisiration on payment method with cach account, (iii) Registration of the

direct investment capital accounts of the Target Company; (iv) All credit

agreements, facility agreements, loan agrcemenls, hedging ayroements between credit institutions, banks or any other parties and the Target

Company, with all amendments thereto; (v) All debt acknowledgments of the

Target Company pursuant to credit agrectnents signed with credit institutions;

(vi) All loan agreements which the Target Company has signed with other

parties (other than credit institution); (vii) Certificates of registrations of

foreign loans of the ‘Target Company with the State Bank of Vietnam; (viii)

List of all morigaged/pledged/secured assets, which the Target Company has

obtained from other parties or which the Targel Company has provided to

credit institutions or other parties: and (ix) All mortgage/pledge/security

agroemonts which the Targel Company signed with credit institutions or other

parties and the registration of those security interests

2.1.2.3 Material Contract and Obligations of ihe Seller matters

(i) All valid and material suppher contracts, and a list of all major suppliers/customers’service of the ‘I'arget Company; (ii) All valid and material

agreements and/or commitments beyond the ordinary business scope of the

‘Target Company, (iii) All valid and material agreements with affiliates and

related parties and the corporate approvals, (iv) Any valid documents relating

{o acquisition or disposal representing al least 35% of the total value assets of

the ‘Target Company; (v) All valid and material loan agreements,

mortgage/pledge agreements; (vi) All valid insurance policies and premium

payment ovidenco; and (vi) Any sharcholders’ agrcemonts, business

cooperation contracts, development agreements, strategic alliance/cooperation

agreements which were entered inlo by the Targel Company

This section is critical and will be onc key area of the negotiations

Therefore, it is suggested that the Buyer and its advisory team request copies

of all material contracts and obligations of the Seller

2.1.2.4 Land, properties and equipment matters

(1) Documents regarding the title or the right to use the real properties

and the material asscts of the Target Company (ic purchase contracts, lease

contracis, payment evidences, construction work ownership certificate, land use right certificate and ownership of assets attached to land), (ii} Land issue

decisions issued by the competent authorities to the Target Company with

regard to the land (ie decision on the recovery and allocation of the land);

(ii) Land lease agreement entered into by the competent authorilies im regards

of all land parcels used and/or occupied by the ‘Target Company; (iv)

Notifications/minutes/decisions/or letters from the relevant People’s

Commitice and Statc department concerning; Land clearance and reallocation

of the affected households, and Payment of land clearance by the Target

Company; {v) Minutes of land boundary handover in regards of all land

parcels uscd and/or occupied by the Target Company, (vi) Excerpt of cadastral map in regards of all land parcels used and/or occupied by the

Target Company, (vii) Any other correspondence, requests, applications,

approvals, in relation to all land parcels used and/or occupied by the ‘Target

Company; (viii) Document evidencing all land use fees and/or house rental

and any rental reduction/exemplion (i.¢ Notifications or letters from the

Department of Finance or the Tax Department or another relevant authority

concerning: Land assignment/lease price, total amount due, payment method,

deduction), Receipi(s) of land assignment/lcase payment/land tax payment,

(zx) All documents relating to buildings and construction works in the land

(including but not limited to the building ownership certificates, approval of

construction project, approved gencral drawing and basic architectural plan,

approved basic and technical design, construction permit, certificate of force-

resistant (in Vieinamese: “Gidy Chimg nhdn An todn Chiu bec)’, cortlicatc

approving the satisfaction of construction works norms (in Vietnamese: “Gidy

Chứng nhận Phù hợp Chất lượng Công irình Xây dựng”) and permit

approving the height narm (in Vietnamese: “Gidy Chứng nhận Tiêu chuẩn Độ

cao”), etc ), x} Construction permits for the constructions of all works of the

Target Company; (xi) Approval(s) of the basic design(s} and/or fundamental

and technical design for the constructions of all works of the ‘Target

Company; (xii) Minutes on acceptance/completion of construction works of

the Targel Company; Gail) All approval, acceptance in relation to the Gre

prevention and extinguishment, ie approval for fire prevention and

extinguishment design, acceptance on fire prevention and extinguishment

system, approval on lire prevention and extinguishment plan, compulsory lire and explosion insurance; (xiv) All subsisting mortgages, pledges, charges and

debentures and other encumbrances over the land and properties on land,

including but not limited to The registration of mortgage en land with the Office of land use right registration; and Registration of mortgage over

property on land with National Registration Agency I'or Secured Transactions

(“NRAS

}, (xv) ‘The status of legal disputes relating to the use and

occupation of the Target Company over all land parcels and properties on

land; (xvi} Decisions of the courV/arbitralion/administrative body under which

the ‘Target Company must comply/comply with respect to all land parcels and

properties

2.1.25 Intellectual Proporty matters

G) All valid documents relating to intellectual properties right of the

Targel Company (including bul not limited to intellectual property right

ownership/registration/protection cerlifivates, transfer agreements, agreement

to grant the right of use, etc.), (i) All valid and material licensing or franchise

or royalty agrcements of he Target Company; (iii) All Internet domain names used by the Target Company: (iv) All agreements relating to the Target

Company’s use of such domain names and documents regarding the title/right

of the Targct Company to usc such domain names, (v) Details of any

infringements of the Target Company's intellectual properties known by the Target Company, and (vi) List of software programs which the Target

Company have heen using with the relevant permits or licenses

2.1.2.6 Employment and Management matters

@ List of all employees of the Target Company, including key detail of

names, designation, employment date, employment term, salary (including

wage, allowance and other benefits), etc.; (ii) Plans of benefits and incentives

granted to the employces of the Target Company; (iir) Information of whether the Target Company’s employees are subject to overtime working; (iv)

Standard of employment contracts between the Target Company and its

employees; (v) List of kcy personnel, cmployment contracts and other relevant agreements (including confidentiality agreements, agreements on the

ownership of intellectual properties, etc.) between the Target Company and

such key personnel, (vi) Indemmification agreements or understandings

between the Target Company and any of their respective employees or

directors; (vii) Nolices on results of contribulion [or mandatory insurances Lor

the employees of the ‘Target Company (including health insurance,

unemployment insurance and social insurance) issued by the Social Insurance

Department and documents evidencing the social, health and unemployment

insurance payments for the last three months; (viii) Internal labor regulations,

and documents evidencing the registration of such documents with the labor

authority; (ix) Collective labor agreement and documents evidencing the

registration of such document with the labor authority; (x) Documents relating

to the cstablishment and operation of grassroots trade union, and appointment

of members of the trade union committee; (xi) List of foreign employers and

work permits for these foreign employees of the Target Company; (xii) Plan

onuse of expatriates of the Target Company and the approval of the relevant

People’s Committee/Provincial Department of Labor, War Invalids and Social Affairs on such plan; (xiii) Confirmation on exemption of work permits for

foreign employees/expatriates working in the ‘Target Company, including

foreign employees/expatriates of the contractor(s) of the Company, if

available, (xiv) Documents relalmg io any termination of labor

contract’service contract/probation contract entered into by the ‘Target

Company and the relevant employees/service providers, (xv) Documents

ed

relating 1o any dismnssal oÍ cmployees ([ availablc) issucd by the Target Company: (xvi) All periodical employment notices and reports required to be

submitted to the labor authorities of the Target Company; (xvii} Reports on

labor claims or disputes mvolving the employces of the Target Company, c.g

on disciplinary actions, labor accidents, etc, (xviii) Reports on employee

usage by the Company to authorities, including but not limited to report on

labor safety and hygiene, bi-annual report on use of employment, etc

2.1.2.7 Litigation and Adversarial proceedings

G) List of any pending, threatened or conlemplated litigation,

administrative proceedings and arbitration involving the ‘Target Company as

well as its drugstores, domestic or foreign, including, wherever applicable, the

cause of achon, date initialed, jurisdiction, court, casc number, counsel

involved, amount in controversy and status of dispute, (ii) List of anv

pending, threatened or contemplated governmental investigation or inquiry,

domestic or lorcign, of the Target Company or any of their properties: (iii)

Details of any major penalties imposed on the Target Company as well as its

drugstores; (iv) Any and all other litigation or dispute-rclated documents or information concerning the Target Company,

It should be noted that the Buyer to be sure to obtain specific

representations and warrantics from the Seller and its advisors regarding any

knowledge pertaining to potential or contingent claims or litigation

Regarding to projects in the fields related to construction, production,

etc the legal due diligence may concern some other matters, as follows

the Target Company: (ii) Confirmation of salis(action and compliance with the approved RIAR issued by competent authorities to the Target

Company; G11) All environment reports, audits or other assessments

relating to the Target Company and any propertics that its own or

occupied, that were commissioned; (iv) Contracts with other parties for

disposal, transportation, collection and treatment of solid wastes, toxic and hazardous wastes, waste water, air emission discharged from and

chemicals used for the Target Company; (v) Documents evidencing the

payment of environmental protection charges for wasle water and solid

waste of the ‘larget Company; (vi) Details of any hazardous substances

(such as oil, chemicals or radioactive substances} used or stored (whether

above or underground) al any of the proportics (both currenlly and

previously owned or occupied by the Target Company or out of such

properties, (vii) Underground or surface water exploitation and use permit

or any contract for waler supply wilh the supplier of the Target Company;

(viii) Registration of owner of hazardous waste sources to the Target

Company; (ix) Wasic water discharge permits issued to the Target Company; (x) Details of the Target Company's established procedures

and compliance with all conditions, limitations, obligations, prohibitions

and requircments contained in any health and safety laws regarding those

who work for or visit the Target Company or are otherwise affected by it, (xi) Details of any complaints, enforcement action or legal proceedings

threatened or taken by any regulatory authority or third party (including

any neighbors or environmental action groups} in respect of any

environmental matler of health and safely matter, (xii) Nolices of

violation, allegations of non-compliance from any environmental

authorities;

2.1.2.9 Compliance matters

Regarding the Compliance matters, the Buyers should consider

whether: (i) the Target Company has any customer or client that is a

government or department, agency, ministry or instrumentality thereof, a

government or state-owned or controlled entity, a public international

organization, a political party, or (ii) Applicable internal governance

policies of the Target Company including but not limited to Financial

management policies, Anti-bribery or prohibition on corrupt payments;

Facilitation payments, Travel for customers, suppliers, employees or

officials of Government Entities; Meals, Gifts and Entertanment,

Political Contributions, etc., (iii) the Target Company retains finders,

agenls, consultants, or other third parties lo help it sourec business or

otherwise interact with a Government Entity, and (iv} other compliance

miatters related to project’s fields

- What legal steps will necd to be taken to effectuate the

transaction (i.e director and stockholder approval, share transfer

restrictions, restrictive covenants in loan documentation)? Ilas the

appropriate corporate authority been obtained to proceed with the

agreement? What key third-party consents (ie lenders, venture

capitalists, landlords, key customers) are required?

- What antitrust problems, if any, are raised by the transaction?

- Will the transaction be cxempt from rcgisiralon under applicable laws?

- What are the significant legal problems or issues now affecting

the Seller or that arc likely to affect the Seller in the toresecable future?

What potential adverse tax consequences to the Buyer, Seller, and their

respective shareholders may be triggered by the transaction?

- What are the potential post-closing risks and obligations of the

Buyer? To what extent should the Seller be held liable for such potential

liability? What steps, if any, can be taken to reduce these potential risks

or liabilities? What will it cost to undertake these steps?

- What are the impediments to the assignability of key tangible

and intangible asscls of the Seller company thal are desired by the Buyer,

such as real estate, intellectual property, favorable contracts or leases,

human resources, or plant and equipment?

- What are the obligations and responsibilities of the Buyer and

Seller under applicable laws?

- What are the obligations and responsibilities of the Buyer and

Seller to the creditors of the Seller?

- What are the obligations and responsibilities of the Buyer and

Seller under applicable laws (ic will the Buyer be subject to successor

liability under laws and as a result be obligated to recognize the presence

of organized labor and therefore be obligated to negotiate existing

collective labor agreements)?

- To what extent will employment, consulting, confidentiality, or

non-competilion agreements need Lo be crealed or modified in connection

with the proposed transaction?

2.1.4 Difficulties in conducting legal due diligence in Vietnam

2.1.4.1 Mechanism in document archive

Pursuant to Article 11 of Law on Enterprise 2014, depending on the

form, the enterprise must retain corporate documents However,

Vietnamese enterprises as the Sellers have not been doing well in

documentary archive which not only violate the statutory obligations of

enterprise but also waste lots of time for the Buyer and counsel to conduct

legal due diligence Domestic enterprises in Vietnam are also typically

unfamiliar with the documents required to be provided or disclosed in a

due diligence exercise, or how to properly organize them for the other

side Even though, such enterprises own a promising set of value and

potentiality bul not duly compliant with the laws, resulting in the

reduction of its price and attraction to the foreign investors

2.1.4.2 Lack of reliable publicly available information on the

Targel Company

The business environment in Vietnam is less transparent than in

most developed countries, and the enforcement of law on local enterprises

is rather loose As a result, local enterprises are often involved in less-

than-transparent transactions Sometimes they maintain two different

accounting beoks In addition, company managers tend to hide adverse

information about their enterprises such as tax, social insurance, and other

debts and pending litigation cases A potential investor may find it

challenging to conduct a comprehensive due diligence exercise in

Vietnam due to a lack of transparency among domestic enterprises A

largel enterprise may invoke State secrecy laws to prevent disclosure of

information if the State has equity in the enterprise In addition, potential

investors may find domestic enterprises’ record-keeping and accounting

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practices lacking compared with international standards, making the task

of verntying a target enterprise’s compliance status even more

challenging Patience, diplomacy and good communication skills are

necessary for obtaining the relevant information pertaining to a target

enterprise ‘This may occasionally affect the results of a due diligence

review, which may cause significant delays in obtaining information from

the target

Currently, there is no reliable system in Vietnam for public searches

of corporate information, litigation or bankruptcy Therefore, when

conducting due diligence on a company in Vietnam, foreign investors

often have to heavily rely on the documents and information provided by

the Sellor(s) and/or the Target Company Consequently, oxtensive

contractual protections are needed in relation to the quality and completeness of the disclosed due diligence data With respect to public

and listed Larget companies, appropriate arrangements need to be put in

place in respect of disclosure of “insider information” to avoid insider

trading risks

2.2 Preparing M&A agreement and the related legal documents

After the completion of the due diligence, the Buyer must work

carcfully with legal counsel to structure and begin the preparation of the

definitive legal documentation The drafting and negotiation of these

documents will usually concentrate on the key terms of the transactions,

the present conditions of the business, the past history of the Seller ‘They

also describe: (i} the terms of the Seller’s indemnification of the Buyer,

Gi} the nature and scope of the Seller’s representations and warranties,

(iii) the conditions precedent to closing of the transaction, (iv) the

responsibilities of the parties during the time period between execution of

the M&A agrcement and aclual closing, (v) the lerms and structure of payment, (vi) the scope of post-closing covenants of competition and

related obligations, (vii) the deferred or contingent compensation

components, and (vit) predetermined remedies for breach of the contract

Risk allocation is the heart and soul of the M&A Agreement The

Buyer will want to hold the Seller accountable for any post-closing claim

or liability which arose relating to a set of facts which occurred while the

Seller owned the Target Company, or which has occurred as a result of a

misrepresentalion or material emission by the Seller.* The Seller, on the

other hand, wants to bring as much finality to the transaction as possible

When both parties are represented by skilled negotiators, a middle ground

is reached beth in genoral as well as on spocific issues of actual or

potential lability The Buyer’s counsel will want to draft changes,

covenanls, representations and warranties which are strong and absolute

and the Scller’s counsel will seck lo inserl phrases like, “ execpt

insignificant defaults or losses which have not, or are not likely to, at any

time before or aller the closing, result in a matorial loss or liability lo or against the Buyer ” The battleground will be the indemnification

provisions and any exceptions, carve-outs, or baskets which are created to

dilute these provisions

M&A agreement and related documents may include the following Share Transfer Agreement (“STA”), Share Purchase Agreement (“SPA”),

Shareholder Agreement (“SHA”), Joint Venture Agreement (“IVA”), etc

* Oliver Massmann, Duane Morris Vietnam LLC (2017), Public mergers and acquisitions in Vietnam:

overview, hllps:i/gou.g/U9jsLx