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

2.1.2 Matters to be covered in a legal due diligence In analyzing the company for sale, the Buyer’s team carefully reviews and analyzes the following legal documents and records, where

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF LAW

THAN THU THAO

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 of Training : Full-time Course

Ha Noi - 2018

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF LAW

THAN THU THAO

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 of 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 materials previously published or written 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 rd 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 Thi Thanh Thuy, who has given me invaluable instruction

I greatly appreciate Department of Business Law, School of Law, Vietnam National University for facilitating my thesis

My greatest thanks also go to my family, my supervisors at Vietnam International Law Firm (VILAF Hong Duc) and my dearest friends, who always stand by and support me

ABBREVIATIONS

to conduct an M&A transaction by foreign investors in the Vietnamese laws

States of America

TABLE OF CONTENTS

CERTIFICATE OF AUTHORSHIP/ORIGINALITY

ACKNOWLEDGEMENT

ABBREVIATIONS

TABLE OF CONTENTS

INTRODUCTION 1

1 Literature Review 2

2 Research Objective 3

3 Research Scope 4

4 Research Methodology 4

5 Thesis structure 5

CHAPTER 1: THE CONCEPT OF MERGER AND ACQUISITION 6 1.1 Definition of Mergers and Acquisitions 6

1.2 The Differences between Mergers and Acquisitions 7

1.3 Role of M&A activities 8

CHAPTER 2: LEGAL PROCEDURES TO CONDUCT AN M&A TRANSACTION AND FOREIGN RESTRICTIONS ON M&A IN VIETNAMESE LAWS 10

2.1 Legal due diligence 10

2.1.1 Role of a legal due diligence 10

2.1.2 Matters to be covered in a legal due diligence 11

2.1.3 Ten key questions should be raised during the legal due diligence 20

2.1.4 Difficulties in conducting legal due diligence in Vietnam 22

2.2 Preparing M&A agreement and the related legal documents 23

2.2.1 Typical clauses in an M&A agreement 25

2.2.2 Case study: WOLF Acquires RABBIT 27

2.2.3 Restrictions for foreign investors on negotiating the M&A

agreement 33

2.3 In the step of post-closing an M&A transaction 38

2.3.1 Steps to post-closing 38

2.3.2 Issues that the foreign investor should take into account in the step of post-closing 39

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 Vietnam 50

3.2 Determining the value of M&A transactions 52

CONCLUSION 53

LIST OF REFERENCES 54

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 US$8.2 million 2016 and 2017 were recognized as boom years for M&A in the appearance of billion-USD-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 53% of shares

However, conducting an M&A deal is not easy, resulting in the fact that approximately 50% of M&A deals fail An M&A deal is considered to be successful when the parties shall not only achieve their financial 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 Legal 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 existing foreign ownership restrictions and conditions applicable to the foreign investors have been the most significant factors

impacting upon deal structures in Vietnam The cost and time which is considered to be two success points in business will be taken into account if the investment procedures are diffusive This Thesis hereby may help the foreign investors 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 restrictions in Vietnamese laws to successfully close the 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 issues:

Partner at law firm Mayer Brown JSM, 2017;

the foreign investors”, Lawyer Dinh Tien Hoang and Than Thu Thao, 2017;

Oguchi, Taro Hirosawa, Ha Hoang Loc, Partners at Nishimura & Asahi, 2017;

Today”, Phan Quan Viet, Falcuty Business Management, Sai Gon University, 2015;

Oliver Massmann, Duane Morris Vietnam LLC, 2017;

- Book “Mergers & acquisitions: A step-by-step legal and practical guide”, Edwin L Miller Jr., 2007;

Sherman and Milledge A Hart, 2006;

nhìn quản trị công ty”, Assoc Prof., PhD Pham Duy Nghia, School of Law, Economic University, Ho Chi Minh City, 2011;

resolutions”, Le Net, Partner at LNT & Partners and Arbitrator at the Vietnam International Arbitration Centre, 2014;

Anh, Managing Partner at Vietnam International Law Firm, 2016;

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 legislation are evident in the attempts of Vietnam to 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 Vietnamese laws’ restriction Attempting to cover that gap and aiming to help to attract both foreign and domestic investments in line with international 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 Vietnam 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 legal 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

“roadmap” 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 Thesis will focus on legal basis and practice of undertaking Vietnamese laws in each step of an M&A transaction Moreover, this Thesis will point some remarkable notices that the foreign investors must take when they wish to indirectly invest into Vietnam Accordingly, some recommendations and solutions will be proposed to perfect the legal frame regulating upcoming M&A transactions and facilitating the foreign 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, Content analysis is employed systematically to examine

the particular body of Vietnamese laws and regulations;

Thirdly, the Comparative method plays a significant role in this

Thesis to contrast Vietnamese domestic legislation with international

standards enables the discovery of relative strengths and weaknesses in the Vietnamese legal framework for M&A in carrying out those standards

6 Thesis structure

There includes 04 main parts in the Thesis:

and foreign restrictions in Vietnamese laws;

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

CHAPTER 1: THE 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 It is important 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 or 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

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;

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 the assets or shares of the Seller, with the form of payment being cash, the securities of the Buyer, or other assets of value 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

separate as a new subsidiary or operating division In an asset purchase transaction, 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

Firstly, 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 two or more businesses nature cooperating and consensus linking into an enterprise to bring in one benefits and reputation, which attracts huge range of contractors and customers However, in fact, the majority of deals are usually very difficult to achieve

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, etc.) Meanwhile, after the

of M&A Activity in Vietnam Today, https://goo.gl/SKoCHq

acquisition agreement comes into effect, the acquired business shall only terminate partially operations to the acquired parts; 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

1.3 Role 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

In the context of new business environment which always request enterprises to get adapted and raise competitive 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 to 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 (i.e 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

From investors’ perspective, in replacement of establishing a new enterprise, M&A is an effective way to step into the market quickly without

of M&A Activity in Vietnam Today, https://goo.gl/SKoCHq

of M&A Activity in Vietnam Today, https://goo.gl/SKoCHq

spending cost and time for legal procedures For newly-incorporated enterprises, M&A is such a choice to accumulate strength and reduce their costs (i.e cutting 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

CHAPTER 2: LEGAL PROCEDURES TO CONDUCT AN M&A TRANSACTION AND FOREIGN RESTRICTIONS ON M&A IN

VIETNAMESE LAWS 2.1 Legal due diligence

2.1.1 Role of a legal due diligence

Following 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 strategic review of all of the Seller’s documents, contractual relationships, operating history, and organizational structure Due 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.6 The Seller’s team shall organize the documents, and the Buyer’s team must be prepared to ask all of the right questions, thereby conducting a detailed analysis of the documents provided The legal due 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 to structure the transaction documents

A diligence process is set out to answer the vital questions, and ensure with reasonable warranties 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 final M&A agreement Effective due

Page 66

know which questions to 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 due 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 it 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 to be covered in a legal due diligence

In 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 matters

Corporate records of the Seller includes: (i) Enterprise registration certificate/Business registration certificate/investment registration certificate (if any)/investment certificate (if any) and all of their amendments, supplements and renewal from time to time of the Target Company issued by licensing authorities 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 to 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

accountant and, if available, the chief financial officer 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 Target 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

certifications, conditional business certificates, practicing licenses, or other governmental approvals issued to the Target Company/its subsidiaries and their employees as necessary for the Target Company and its subsidiaries to conduct its business activities; (ix) Any and all other constituent documents of the Target Company; (x) Periodical reports on projects implementations of the Target Company submitted to the relevant State authorities; (xi) Shareholders’ registration books, shares certificate and documents proving the completion of the capital; (xii) Any agreements relating to management, control, distribution of dividends, exercise of voting rights, 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 in-kind capital contribution and/or 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 matters

It shall contains the following sections: (i) All audited financial statements and latest interim financial statements of the Target Company and its subsidiaries; (ii) List of existing bank accounts of the Target Company (including both domestic and offshore accounts; VND and foreign currency accounts) and the approval for the opening of offshore bank accounts and registration on payment method with each account; (iii) Registration of the direct investment capital accounts of the Target Company; (iv) All credit agreements, facility agreements, loan agreements, hedging agreements 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 agreements 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 mortgaged/pledged/secured assets, which the Target Company has obtained from other parties or which the Target Company has provided to credit institutions or other parties; and (ix) All mortgage/pledge/security

agreements which the Target Company signed with credit institutions or other parties and the registration of those security interests

2.1.2.3 Material Contract and Obligations of the Seller matters

(i) All valid and material supplier contracts, and a list of all major suppliers/customers/service of the Target 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

to acquisition or disposal representing at 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 evidence; and (vii) Any shareholders’ agreements, business cooperation contracts, development agreements, strategic alliance/cooperation agreements which were entered into by the Target Company

This section is critical and will be one 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

(i) Documents regarding the title or the right to use the real properties and the material assets of the Target Company (i.e purchase contracts, lease contracts, 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 (i.e decision on the recovery and allocation of the land); (iii) Land lease agreement entered into by the competent authorities in regards

of all land parcels used and/or occupied by the Target Company; (iv) Notifications/minutes/decisions/or letters from the relevant People’s

Committee and State 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 used 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/exemption (i.e 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); Receipt(s) of land assignment/lease payment/land tax payment; (ix) 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 general drawing and basic architectural plan, approved basic and technical design, construction permit, certificate of force-

resistant (in Vietnamese: “Giấy Chứng nhận An toàn Chịu lực)”, certificate approving the satisfaction of construction works norms (in Vietnamese: “Giấy

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

approving the height norm (in Vietnamese: “Giấy 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 Target Company; (xiii) All approval, acceptance in relation to the fire prevention and extinguishment, i.e approval for fire prevention and extinguishment design, acceptance on fire prevention and extinguishment

system, approval on fire prevention and extinguishment plan, compulsory fire 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 on land with the Office of land use right registration; and Registration of mortgage over property on land with National Registration Agency For Secured Transactions

(“NRAST”); (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 court/arbitration/administrative body under which the Target Company must comply/comply with respect to all land parcels and properties

2.1.2.5 Intellectual Property matters

(i) All valid documents relating to intellectual properties right of the Target Company (including but not limited to intellectual property right ownership/registration/protection certificates, transfer agreements, agreement

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

or royalty agreements of the 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 Target Company to use 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 been using with the relevant permits or licenses

2.1.2.6 Employment and Management matters

(i) 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 employees of the Target Company; (iii) 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 key personnel, employment 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) Indemnification agreements or understandings between the Target Company and any of their respective employees or directors; (vii) Notices on results of contribution for mandatory insurances for 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 establishment 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

on use 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 relating to any termination of labor contract/service contract/probation contract entered into by the Target Company and the relevant employees/service providers; (xv) Documents

relating to any dismissal of employees (if available) issued 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 involving the employees of the Target Company, e.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

(i) List of any pending, threatened or contemplated litigation, administrative proceedings and arbitration involving the Target Company as well as its drugstores, domestic or foreign, including, wherever applicable, the cause of action, date initiated, jurisdiction, court, case number, counsel involved, amount in controversy and status of dispute; (ii) List of any pending, threatened or contemplated governmental investigation or inquiry, domestic or foreign, 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-related documents or information concerning the Target Company;

It should be noted that the Buyer to be sure to obtain specific representations and warranties 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:

2.1.2.8 Environment, health and safety

(i) Any necessary environmental impact assessment reports

(“EIAR”), commitment of environment protection, permits and approvals

and/or any necessary certificates regarding environmental protection by

the Target Company; (ii) Confirmation of satisfaction and compliance with the approved EIAR issued by competent authorities to the Target Company; (iii) All environment reports, audits or other assessments relating to the Target Company and any properties 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 waste water and solid waste of the Target Company; (vi) Details of any hazardous substances (such as oil, chemicals or radioactive substances) used or stored (whether above or underground) at any of the properties (both currently 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 water supply with the supplier of the Target Company; (viii) Registration of owner of hazardous waste sources to the Target Company; (ix) Waste 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 requirements 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 proceedi ngs threatened or taken by any regulatory authority or third party (including any neighbors or environmental action groups) in respect of any environmental matter of health and safety matter; (xii) Notices 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 Entertainment, Political Contributions, etc.; (iii) the Target Company retains finders, agents, consultants, or other third parties to help it source business or otherwise interact with a Government Entity; and (iv) other compliance matters related to project’s fields

2.1.3 Ten key questions should be raised during the legal due diligence

The Buyer’s acquisition team and its legal counsel gather data to answer the following ten legal questions during the legal phase of a legal due diligence:

transaction (i.e director and stockholder approval, share transfer restrictions, restrictive covenants in loan documentation)? Has the appropriate corporate authority been obtained to proceed with t he agreement? What key third-party consents (i.e lenders, venture capitalists, landlords, key customers) are required?

- Will the transaction be exempt from registration under applicable laws?

the Seller or that are likely to affect the Seller in the foreseeable future? What potential adverse tax consequences to the Buyer, Seller, and their respective shareholders may be triggered by the transaction?

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?

and intangible assets of the Seller company that are desired by the Buyer, such as real estate, intellectual property, favorable contracts or leases, human resources, or plant and equipment?

Seller under applicable laws?

Seller to the creditors of the Seller?

Seller under applicable laws (i.e 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)?

non-competition agreements need to be created 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 discl osed 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 but 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 Target 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 than-transparent transactions Sometimes they maintain two different accounting books 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 target 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

less-practices lacking compared with international standards, making the task

of verifying 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 Seller(s) and/or the Target Company Consequently, extensive contractual protections are needed in relation to the quality and completeness of the disclosed due diligence data With respect to public and listed target 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 carefully 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, (ii) 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 agreement and actual closing, (v) the terms and structure of payment, (vi) the scope of post-closing covenants of competition and related obligations, (vii) the deferred or contingent compensation components, and (viii) 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

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 both in general as well as on specific issues of actual or potential liability The Buyer’s counsel will want to draft changes, covenants, representations and warranties which are strong and absolute and the Seller’s counsel will seek to insert phrases like, “…except insignificant defaults or losses which have not, or are not likely to, at any time before or after the closing, result in a material loss or liabili ty to 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 (“JVA”), etc

overview, https://goo.gl/U9jsLx