Successful Legal Due Diligence Strategies

LAWPLUS

ASIA BUSINESS CONNECT

LEGAL & FINANCIAL DUE DILIGENCE STRATEGIES FOR

SUCCESSFUL ACQUISITIONS, JVs & STRATEGIC ALLIANCES

SUCCESSFUL LEGAL DUE DILIGENCE STRATEGIES

− KEY ISSUES & PRACTICAL CONSIDERATIONS

5 October 2017

The Landmark Bangkok

Kowit Somwaiya

Managing Partner

www.lawplusltd.com

LAWPLUS

The information provided in this document is general in nature and may not

apply to any specific situation. Specific advice should be sought before

taking any action based on the information provided. Under no

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contained in this document. Copyright © 2017 LawPlus Ltd.

www.lawplusltd.com.

LAWPLUS 1

Presentation Topics on Successful Legal Due Diligence (“LDD”) Strategies − Key Issues and Practical Considerations

1. Scope of LDD investigation

- Limited LDD and full LDD

- Independent searches on target company (“TC”)

- Review of documents

2. Legislation considerations for both local and foreign partners

- Foreign ownership limits

- Exceptions of foreign ownership limits

- Nondisclosure of insider-trading information

3. LDD requirements, agreements and obligations

- Letter of intent (“LOI”)

- Obligations of seller, TC and acquirer

4. How to present effectively the findings from LDD

- LDD report

- Clarification meetings

5. Practical and successful techniques for conducting LDD

- Understanding TC and obtaining LDD documents

- Allocating LDD documents and meeting with TC

- Independent searches and focusing on legal risks

- Clarification meeting and post LDD opinion and advice

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Scope of LDD Investigation

Independent Searches on Target Company

• Limited LDD

- basic corporate matters of 3-5 years only

- material agreements of high values only

- no litigation and asset investigation

• Full LDD

- full investigation of all documents

- documents starting from TC registration date or at least 10 years

- full litigation investigation

- full investigation of assets, licenses and permits

• Company Search at MOC

- Company Affidavit

- Objectives

- MOA

- AOA

- Lists of shareholders

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Independent Searches on Target Company

• Insolvency and Bankruptcy Searches

- Rehabilitation at Central Bankruptcy Court

- Liquidation at Legal Execution Department

• Litigation Searches

- Criminal cases

- Civil cases

• Searches on Lands and Other Assets

- Lands, buildings, factories at Land Offices

- Machinery at Central Machinery Registration Office

- Intellectual property at DIP

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Review of Documents

• Documents on Company Registration and Corporate Matters of TC

- Registration details

- Business objectives and activities

- Minutes of BOD, AGM and EGM

- Shareholders Agreement

- Joint Venture Agreement

• Permits and Licenses

- Investment promotion certificate

- Factory construction and factory operation licenses

- Other licenses for business operation

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Review of Documents

• Major Commercial Transaction Agreements

- Sale and Purchase Agreements

- Distribution Agreements

- Manufacturing Agreements

- Confidentiality Agreements

• Major Investment and Internal Transaction Documents

- Transactions with directors or persons related to or associated with directors or

major shareholders

- Joint venture or partnership agreements with business partners or within the

group of the TC

• Borrowings and Liabilities

- Loan Agreements, B/E, P/N, O/D, T/R, L/C, SBLC

- Guarantee Agreements

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Scope of Legal Due Diligence Investigation Review of Documents

- Assignment Agreements

- Mortgage Agreements

- Pledge Agreements

- Business Collateral Agreements

- Factoring Agreements

- Foreign exchange hedging and other derivatives agreements

• Labour Protection and Employment Matters

- List and details of employees

- Work Rules and Code of Conduct

- Employment contracts

- Employment service (sub-contract) agreements

- Benefit schemes (stock option plan, profit sharing schemes, etc.)

- Registrations and filings with SSF and WCF

- Insurance policies for directors and employees

- Labour union documents

- Work permits for non-Thai employees

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Review of Documents

• Land, Buildings, Factories, Machinery and Other Assets

- Land title deeds, machinery ownership documents, vehicle registration books

- Land Lease Agreements, Office Lease Agreements, Machinery Lease

Agreements

- Lists and details of account receivables and inventories

• Intellectual Property and Information Technology

- Trademark applications and trademark registration certificates

- Patent and design applications and registration certificates

- Domain name and website and related agreements

- Trademark License Agreements, Patent License Agreements, Copyright

License Agreements

- Software License Agreements

- IT and Data Service Agreements

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Review of Documents

• Filings and Reports

- Regulatory filings (in relation to company registration and operation,

employment, etc.)

- Government reports (in relation to investment, promotion, environment, money

laundering, exchange control, etc.)

• Litigation Documents

- Reports on pending lawsuits, arbitration proceedings, demand notices and

potential disputes

- Copies of claims, answers, court orders and judgements

- Confirmation letter of directors in relation to litigation

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Legislation Considerations

Foreign Ownership Limits

• List 3 of Foreign Business Act B.E. 2542 (A.D. 1999) (“FBA”)

restricted activities: foreign ownership not more than 49% of all

share capital

• Is target company holding FBL or BOI certificate plus FBC?

• Will target company obtain FBL or BOI certificate?

• Any other law restricting foreign ownership or Thai-foreign director

ratio?

- financial institution law

- telecommunications law

- etc.

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Legislation Considerations Exceptions of Foreign Ownership Limits

FBA 49% foreign ownership limit does not apply to:-

• Activities not listed under the FBA, e.g. manufacturing own brand products

• Business that is granted BOI certificate or Industrial Estate Authority of Thailand

(IEAT) permit

• Business that is given exceptions under treaties and agreements between

Thailand and other countries (Thailand-US Treaty, JTEPA, ACIA, AFAS)

• Service businesses exempted from List 3 of FBA: securities trading, investment

consulting, mutual fund and private fund management, futures trading, trustee

under the law on trust for transactions in capital market, commercial banks,

representative office of foreign banks, life and non-life insurance, etc.

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Legislation Considerations Nondisclosure of Insider-Trading Information

• TC listed on SET or MAI

• Internal disclosure on the “need-to-know” basis only

• Set up a project name for LDD investigation

• Penalties for disclosure and use of LDD information by insiders

- directors and management team

- advisors

- family members and related persons

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LDD Requirements, Agreements and Obligations

Letter of Intent (“LOI”)

• Signed by seller and acquirer

• Intention to enter into M&A transaction, subject to

- LDD investigation

- successful negotiation and execution of SPA or APA

• Details of shares or assets to be acquired and their prices

• LDD investigation commitment

• Exclusivity period for LDD investigation and negotiations of SPA

• Non-disclosure undertakings during and post exclusivity period

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LDD Requirements, Agreements and Obligations

Obligations of Seller, TC and Acquirer

• Seller and TC

- Making LDD documents available in a prompt manner

- Making full disclosure of LDD documents

- Being cooperative in giving additional LDD documents, explanations,

clarifications or confirmation letters

• Acquirer

- Appointing lawyers for LDD investigation

- Giving lists of LDD documents to seller and TC

- Asking for additional documents and more information as lawyers may direct

- Communicating and meeting with seller and TC to clarify unclear issues

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How to Present Effectively the Findings from LDD

• Draft LDD Report

- carefully drafted

- Having it reviewed by acquirer before issuing its original

• LDD Report consists of:-

- introduction

- the Report

- the Extent and Basis of the Report

- list of documents reviewed

• LDD Report is

- a summary of facts found

- not opinion or advice

- based only on documents reviewed

- subject to assumptions and qualifications

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Practical and Successful Techniques for Conducting LDD

• Understanding TC

- obtaining general information on industry

- checking general information on TC and seller

• Obtaining LDD documents

- LDD data room and sufficient accession must be made available

- list of LDD documents must be prepared and given promptly

- additional LDD documents must be obtained from TC promptly

- cooperation from TC must be requested

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• Allocating LDD documents for reviewing

- reviewing by lawyers having relevant experience and expertise

- templates for summary of documents reviewed

- setting up timeframe and deadline for LLD investigation

• Meeting with TC

- meeting if necessary

- for clarification of unclear or suspicious issues

- to check originals of documents if necessary

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• Independent searches

- necessary for documents available to the public

- online searches where possible

- relying on independent search results if they conflict with those given by TC

• Focusing on legal risks

- existing legal risks

- future legal risks that may occur

- add them as red flags in the LDD report

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• Clarification meeting

- requested by acquirer

- clarification letter may be necessary

• Post LDD opinion and advice

- given only if requested separately from LDD report

- opinion on validity and enforceability of documents

- opinion on regulatory compliance

- determining and assessing legal risks

- advice on legal issues and measures to mitigate legal risks

END OF PRESENTATION

LAWPLUS

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Contacts:

Kowit Somwaiya, Managing Partner [email protected] Prasantaya Bantadtan, Partner [email protected] Naddaporn Suwanvajukkasikij, Partner [email protected]

http://www.lawplusltd.com/

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