Presentation 06-8-13

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NEW DELHI | MUMBAI | BANGALORE

August 9, 2013

LEGAL ASPECTS OF MERGERS &ACQUISITIONS

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Sameen VyasPartner

Luthra & Luthra Law Offices


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OVERVIEW

Modes of Acquisition

o Stock Deal Vs Asset/Business Deal

T!ns!ction Pocess Stoc" #e!$o Due Diligence

o Definitive Documentation

o Key Approvals

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MO#ES OF ACQUISITION

Acuisition of securities of an e!isting target company "#T!%etCo'!n($%

o Primary investment - &y way of su&scription to fresh securities"shares' (e&entures' preference shares' warrants etc.% of the )arget

o

Secondary investment - &y way of acuisition of euity/ preferenceshares from e!isting sharehol(ers of the )arget Acuisition of an entire &usiness/ un(ertaking as a going concern on a

#slump sale$ &asis

o Contractual slump saleo Court approved scheme "Section 3*+, 3*- of the ompanies Act%

Application to uris(iction 0igh ourt to convene sharehol(ers1an( cre(itors1 meetings



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MO#ES OF ACQUISITION )contd

Scheme has to &e approve( &y 3/4th majority of sharehol(ers1 an(cre(itors1 present an( voting, an( thereafter &y 0igh ourt

In case Target is listed entity scheme can !e acted upon only if the

votes cast !y the pu!lic shareholders approving the scheme is twicethe num!er of votes cast !y pu!lic shareholders against it

n case )arget is a liste( entity' scheme has to &e su&mitte( "forapproval% to stock e!change' one month prior to su&mission with 0ighourt

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o ourt Approve( Slump sale Indicative Types Of Structures

Structure 1: Demerger

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Acquirer acquires shares of Target Subsidiary



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Structure 2: Hive-off

Acuirer acuires shares of )arget Su&si(iary

o Structure 3: Slump sale directly to Acuirer

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MO#ES OF ACQUISITION)contd

Acuisition of certain select assets / lia&ilities of the )arget

6ergers an( amalgamations un(er Section 3*+ , 3*- of the ompaniesAct

7ormation of a fresh oint venture 8 an( incorporation of a oint venturecompany

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*E+ #IFFERENCES ,ETWEEN A STOC* #EALAN# AN ASSET- ,USINESS #EAL ...contd

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TRANSACTION PROCESS/ STOC* #EALAN OVERVIEW

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#UE #ILIGENCE/ *E+ ASPECTS

Structure an( (esign the (ue (iligence e!ercise (epen(ing on the

o "usiness of the Target

o #ature of the transaction

o

$etermination ofmateriality from a commercial perspectiveo Listed Companies

Pu'ose of ! due di$i%ence e0ecise/

o %is 'atri(

o (entification ofpotential value depletorso Determination ofconditions precedento ritical for evaluation of representations and warrantieso (entification of items forspecific indemnities

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#UE #ILIGENCE/ *E+ ASPECTS ...contd

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$#% Ar#as t '# "(#r#) !* a +#ga+ )u# )!+!g#*"# ##r"!s#



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TRANSACTIONAL ISSUES/ LEGAL#OCUMENTATION

Confidentiality )non-disclosure agreements

o overs financial' technical' legal an( other information (isclose( to Acuirero Duration of confi(entiality o&ligations

Information 'emorandum

o


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#EFINITIVE #OCUMENTATION/ACQUISITION AGREEMENT

ey terms

o on(itions =rece(ent

o =urchase =rice > A(ustments

o ovenants &etween signing an( closing

o losing

o ?epresentations > @arranties

o n(emnification

o imitation of ia&ility

o on,compete > on,solicitation

o onfi(entiality

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#EFINITIVE #OCUMENTATION /ACQUISITION AGREEMENT )contd

Conditions precedent

o 7rom Acquie1s 'es'ecti2e' con(itions prece(ent represent

3!$"4out i%5t8 if all the con(itions prece(ent are not satisfie(&y a specifie( (ate i.e #Lon% Sto' #!te$

o 7rom T!%et - Se$$e1s 'es'ecti2e' con(itions prece(ent shoul(&e!s 'ecise 6!nd o78ecti2e9 !s 'ossi7$e

o Some common e!amples

St!tuto( !''o2!$s such as ompetition Act' 7D policyrelate(

Consents fo counte'!ties"in case of contracts havingchange,in,control provisions%

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#EFINITIVE #OCUMENTATION/ACQUISITION AGREEMENT )contd

No 7e!c5of representations' warranties' covenants an(un(ertakings of Sellers

o event having!tei!$ !d2ese effect having occurre(

o,o&ection certificate un(er Section :;


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#EFINITIVE #OCUMENTATION/ACQUISITION AGREEMENT)contd

Covenants of Target ) Sellers !etween signing and closing

o arry on &usiness in the odin!( couse= !nd in !ccod!nce3it5 !''$ic!7$e $!3

o ot incur any !tei!$ inde7tednesso ot issue o !$$ot secuities of t5e T!%et' or grant to any

person' t5e i%5t o o'tion to !cquie t5e s!eo ot se$$= t!nsfe o ce!te encu7!nces over the assets of

the )argeto ot enter into' terminate or amen( any !tei!$ cont!ct

inc$udin% 3it5 "e( e'$o(ees

o ot (eclare any di2idendso ot !end t5e c5!te docuents of t5e T!%et

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Purchase Price *d.ustments / ey issues

o =ost,closing purchase price a(ustments may 'ose cet!inc5!$$en%es/

f Acuirer is a non,resi(ent entity a!y up"ard revisio!s to purchase price post closi!g

may &e seen as #deferred payme!t of co!sideratio!$,an( woul( reuireprior #$% approval

&orm &'-(#S

has to &e file( within 5; (ays of receipt of

consi(erationC an( transfer of shares can &e recor(e( &y the )arget

only after the same has &een certifie( &y AD,Bank

f )arget is a liste( entity an( open offer is triggere(

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%epresentations and warranties

o W!$"4outright prior to losing, an( indenific!tion i%5tpostlosing

o

Re'etitionas of effective (ate / closing (ateo Some common e!amples

Tit$e to s5!es' an( no 'io encu7!ncesthereon

Requisite co'o!te 'o3e !nd !ut5oit( !nd consents tocarry on &usiness

#ue !ut5oi>!tion to e0ecute= de$i2e !nd 'efo )arget has%ood !nd !"et!7$e title to assets

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Fin!nci!$ St!teents

0ave !een prepared in accordance with Indian 1**P2

Same fairly and accurately represent position of Target

All $icenses reuire( for &usiness 5!2e 7een du$( 'ocuedan( the same are 2!$id?

Co'$i!nce 3it5 !''$ic!7$e $!3

Foei%n Cou't P!ctices Act=


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%epresentations and warranties

o Knowle(ge ualifierso Disclosure Sche(ule

U'd!tion of disc$osue sc5edu$e&etween signing an(

closing All info!tion disc$osed duin% due di$i%enceconstitutes

(isclosure

o Survival =erio( for representations an( warranties

)itle

)a!

Environmental


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Indemnity

o Gene!$ indenit(for &reach of representations / warranties /covenants

o S'ecific indenitieson account of particular items such as non,

compliances' ta! issues such as withhol(ing' pen(ing procee(ingsagainst Seller

Limitation of Lia!ility

o Aggregate cap on lia&ilityo $e-minimus threshol(o )ime limitation on claims



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#EFINITIVE #OCUMENTATION/SBAREBOL#ERS1 AGREEMENT

ey Terms

o 6anagement > Fuorum ?ights, at Boar( an( Sharehol(er1s

meetings

o 7un(ing ommitment an( Business =lan

o nformation rights

o iui(ation preference

o )ransfer of Shares > ?estrictions thereon

o 7uture 7un(ing an( anti,(ilution

o Dea(lock an( mechanisms for e!it

o Events of (efault > e!it on account of the sameo on,compete

o onfi(entiality



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#EFINITIVE #OCUMENTATION/SBAREBOL#ERS1 AGREEMENT...contd

6anagement rights

o ,o!d e'esent!tion"inclu(ing at committee level%

oncept of #control$ un(er 7D policy, #i%5t to !''oint!8oit( diectos$

o Fuorum in Boar( an( Sharehol(er1s meetingso Affirmative vote items

oncept of #control$ 8 7D =olicy' )ake


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#EFINITIVE #OCUMENTATION/SBAREBOL#ERS1 AGREEMENT ...contd

%estrictions on transfer of shares

o ock, ins an( Escrow 6echanismo ?ight of first refusal / right of first offer

?estrictions on sale to competitor

o all / put optionso )ag, along rights "usually minority / private euity%o Drag along rights "usually maority partners%

?estrictions on sale to competitor

Validity on restrictions on transfer of shares in case of a pu!lic company

o Different 0igh ourts have taken (ifferent views

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#EFINITIVE #OCUMENTATION/SBAREBOL#ERS1 AGREEMENT )contd

3uture funding and anti-dilution rights

o 7un(ing ommitment linke( to &usiness plan

Default/ Dea(lock E!ito Valuationo

=ricing regulations stipulate( un(er 7D policy

E!it mechanisms "particularly for private euity investors%o =ut


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#EFINITIVE #OCUMENTATION/SBAREBOL#ERS1 AGREEMENT ...contd

#on-compete and non-solicitation o!ligations during and posttermination of agreement

o Enforcea&ility of non,compete/non,solicit o&ligations un(er n(ianlawC Section 29 of the n(ian ontract Act' +:92

o Enforcea&le only when linke( to sale of goo(will, an( when suchrestriction appears reasona&le "in time an( scope% to the ourthaving regar( to the nature of &usiness.

$ispute resolution mechanisms

o itigation vis,G,vis ar&itrationo hoosing the seat of ar&itration an( the governing law thereofo n case seat of ar&itration is outsi(e n(ia' parties to ar&itration

cannot approach n(ian courts for interim relief etc

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*E+ APPROVALS -REQUIREMENTS

Companies *ct 4567

Competition *ct 8998

Tae Over Code ) Listing *greement

3oreign $irect Investment Policy

Sector specific regulations

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*E+ APPROVALS -REQUIREMENTS/COMPETITION ACT= ::

Applica&le to #co7in!tions$ (efine( as

acuisition of s5!es= 2otin% i%5ts= !ssets !nd conto$over an enterprise

acuisition of conto$ o2e !n ente'ise 35en t5e

!cquie !$e!d( 5!s diect o indiect conto$ o2e!not5e ente'iseengage( in pro(uction' (istri&ution ortra(ing of a similar/su&stituta&le goo(/services

mergers an( amalgamations

where certain threshol(s are met

)hreshol(s linke( to2!$ue of !ssets o tuno2e of

Indi2idu!$ '!ties to the acuisition o the%ou'

in Indi! o %$o7!$$(

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*E+ APPROVALS -REQUIREMENTS/COMPETITION ACT= ::

mportantly' transactions where the T!%et entit( has either

o !ssetsof not more than INR :.D 7i$$ion in Indi!C oo tuno2eof not more than INR .D 7i$$ion in Indi!

5!2e 7een e0e't ti$$ M!c5 :


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*E+ APPROVALS -REQUIREMENTS/COMPETITION ACT= :: ...contd

An( 'eson 35o 'o'oses to ente into ! co7in!tionis reuire(to give notice of the same to the 3it5in d!(s of

o !''o2!$ of 'o'os!$relating to the merger/amalgamation' &ythe &oar( of (irectors of the entities involve( in the

merger/amalgamationo e0ecution of !n( !%eeent o ot5e docuentfor acuisition

of shares' voting rights' assets or control

o notifia&le transaction can &e consummate( unti$ t5e e0'i( of :


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*E+ APPROVALS-REQUIREMENTS/TA*E OVER CO#E

Applica&le to (irect an( in(irect acuisition ofshares/ voti!g rightsi!* or co!trol over the )arget

o oncept #negative control$

6an(atory open offer to pu&lic sharehol(ers triggere( upon

o nitial )hreshol( Acuisition of 24H or more voting rights in thetarget

o reeping Acuisition/ 7or any person hol(ing "in(ivi(ually an( withpersons acting in concert% &etween 24H,94H of the share capital'

acuisition of more than 4H shares in a!y fi!a!cial yearo Direct or in(irect acuisition of control

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*E+ APPROVALS -REQUIREMENTS/TA*E OVER CO#E

6inimum


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*E+ APPROVALS -REQUIREMENTS/TA*E OVER CO#E

o f shares are freuently tra(e(' 2o$ue 3ei%5ted !2e!%e!"et 'ice of such shares for a perio( of d!(siedi!te$( 'ecedin% t5e d!te of 'u7$ic !nnounceent

o f shares are not freuently tra(e(' price (etermine( &y acuireran( manager to offer

o @here acuirer has !n( outst!ndin% con2eti7$e secuities=t5e con2esion 'ice of suc5 secuities also taken intoconsi(eration

@ith(rawal from open offer allowe( in limite( circumstances

+olu!tary ,ffer:

o person hol(ing &etween 24,94H of the shares/voting rights can make avoluntary offer for acuiring atleast +;H a((itional shares/voting rightsu&ect to certain con(ition

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*E+ APPROVALS- REQUIREMENTS/ FOREIGN#IRECT INVESTMENT POLIC+

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3:

Bi%5$( $i7e!$i>ed 'o$ic(

7D permitte( in !$ost !$$ sectosother than

o lottery &usinesso gam&ling an( &ettingo chit fun(so ni(hi companieso manufacturing of cigarettes' cigars

etc' or of to&acco an( to&accosu&stitutes

o tra(ing in transferra&le(evelopment rights

o real estate &usiness orconstruction of farm houses

o atomic energy' an(o railway transport

-r!r g(#r*.#*ta+ a//r(a+required for (#r% #w s#"trs su"h as:

o Defenceo Single &ran( retailo 6ulti,&ran( retail

o Aviationo =harmaceuticals "Brownfiel(%o =rint me(ia



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*E+ APPROVALS- REQUIREMENTS/ FOREIGN#IRECT INVESTMENT POLIC+)contd


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*E+ APPROVALS-REQUIREMENTS/ FOREIGN#IRECT INVESTMENT POLIC+ ...contd

=ricing Jui(elines omputation of fair value "#F!i V!$ue$% on the &asis of

Un$isted co'!nies Discounte( 7ree ash 7low 6etho(

Listed Co'!nies SEB gui(elines

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HAN$ OU

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!arakha"ba #oad, $e% elhi'110001

Tel: 91'11'(1)1*100 Fa+: 91'11')3)3909 e'"ail: s-yas.luthra/co"

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Presentation 06-8-13