Legal Due Diligence in JVS and MAs presented

“Legal Due Diligence in JVS and M&As” presented by Picharn Sukparangsee at the Conference on “Legal & Financial Due Diligence Strategies for Successful Acquisitions, JVs & Strategic Alliances” arranged by the Asia Business Forum on October 28 -29, 2010 at the Royal Orchid Sheraton Hotel, Bangkok 1

LEGAL DUE DILIGENCE IN JVS AND M&As I. LEGAL RATIONAL FOR DUE DILIGENCE II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS III. AVOIDING PITFALLS AND SOLUTIONS IV. CASE STUDY 2

I. LEGAL RATIONAL FOR DUE DILIGENCE 3

I. LEGAL RATIONAL FOR DUE DILIGENCE M&A • amalgamation • merger • takeover • acquisition of shares or assets Joint venture • unincorporated joint venture • incorporated joint venture 4

I. LEGAL RATIONAL FOR DUE DILIGENCE Legal rational for due diligence • comply with laws and regulations • identify and solve legal problems • protect an interested party from any legal liability • due diligence as used as defence in any lawsuit • enable a legal claim against a defaulting party 5

I. LEGAL RATIONAL FOR DUE DILIGENCE Types of due diligence • Financial due diligence by financial advisor • accounting due diligence by auditor • legal due diligence by legal advisor • technical due diligence by technical consultant 6

I. LEGAL RATIONAL FOR DUE DILIGENCE Methods applied in the conduct of legal due diligence • management discussion and analysis • review and summary of agreements and documents • representations and warranties under agreements • issuance of legal opinion 7

I. LEGAL RATIONAL FOR DUE DILIGENCE Fiduciary duties of directors • duty of care • duty of loyalty • duty of obedience • duty of disclosure 8

I. LEGAL RATIONAL FOR DUE DILIGENCE Obligations of directors under laws • duties of care • no conflict of interest • no competition with the business of the company • no sale , no purchase or doing business with the company unless approved by the board of directors • disclosure of interest in any contract , shareholding and bondholding • no loan to a director or an employee unless made under the regulations on the welfare or any law • comply with laws and regulations 9

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS 10

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Examples of important laws • Civil and Commercial Code • Public Limited Company Act • Securities and Exchange Act • Foreign Business Act • Land Code • Investment Promotion Act • Industrial Estate Authority of Thailand Act • Factory Act • Building Control Act • Act on Mortgage of Machinery • Foreign Employment Act Immigration Act 11

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Examples of important laws • Revenue Code and Double Taxation Agreements • Customs Act • Excise Act • Financial Institutions Business Act • Foreign Exchange Act • Environmental Protection and Promotion Act • Competition Act • Labour Protection Act • Act on Establishment and procedures of the tax court • Trade Mark Act • Copyright Act • Patent Act 12

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Conduct of legal due diligence • Affidavit, Memorandum and Articles of Association and the list of shareholders shall be reviewed. • Financial statements of the target company shall be provided. • MOU is signed between a seller and a purchaser. • Confidential undertaking is signed by the purchaser. • A kick-off meeting between a seller and its advisors and a purchaser and its advisors. 13

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Conduct of legal due diligence • Roles of local advisors and foreign advisors. • Data room and documents • List of requested legal due diligence documents • Legal due diligence questions • Interview directors and/or the management • Site visit • Preparation of memorandum • A draft and a final legal due diligence report 14

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Legal due diligence report Disclaimer provision Executive summary 15

II. SCOPEOF OFDUE DUEDILIGENCEIN INDIFFERENT TYPES OF OF TRANSACTIONS Summary of Documents • corporate documents • licences, concessions , permits , certificates and approval • financing agreements • material agreements • land title deeds , land documents, buildings , factories , machinery and equipment • insurance • trade mark , copyright and patent • employment • environmental issues • regulatory requirements • tax disputes • litigation and arbitration 16

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Corporate documents • Affidavit • Memorandum • Articles of association • List of shareholders • Holding company, subsidiary, related company and affiliated companies • Notices and minutes of the meetings of the management Continue 17

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Corporate documents • Notices and minutes of the board of directors meetings • Notices and minutes of the general meetings of shareholders • Groups of shareholders • A branch • A representative office • A regional office • Regional operating headquarters 18

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Corporate Issues to be focused upon • Major shareholders • Authorized directors • Restriction on transfer of shares • Important matters as approved by the board of directors • Important matters as approved by the meeting of shareholders 19

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Licenses, permits, approval, certificates BOI privileged certificate • foreign shareholding • ownership of land • tax exemption and reduction • exemption of importation of raw material and finished products • work permits for experts and technicians 20

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS IEAT • government industrial estate • private industrial estate • Factories • types of factory licences • construction license • use of building license 21

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Financial Agreements • single loan agreement • syndicated loan agreement • underwriting agreement • subscription agreement • purchase agreement • mortgage agreements • pledge agreements • assignment agreements • ISDA Master Agreement 22

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Material agreements • joint venture agreement • consortium agreement • shareholders agreement • share sale and purchase agreement • asset sale and purchase agreement Issues in the Agreements • representations and warranties • affirmative covenants • negative covenants • events of default 23

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Materiality test • percentage of the total assets • percentage of the total revenues • percentage of profits • material adverse effect or change Land Documents • land title deeds • land utilization certificate • land possession certificate • mortgage and other encumbrances over property 24

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Intellectual property • trademark and trade service • copyright • patent (product patent and process patent) • know-how • Licensing Agreement • Know-how Agreement • Technical Assistance Agreement 25

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Human resources • labour protection law • labour relation law • law on establishment and procedures of labour courts Environmental compliance • environmental impact assessment report • health impact assessment report 26

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Insurance • life and non-life insurances • product liability insurance • professional insurance Dispute settlement • litigation vs arbitration • professional expert, arbitrators , umpire, judges Governing law • issues on conflict of laws 27

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Courts • Constitution Court • Court of justice • ordinary courts of justice- courts of first instance, courts of appeal and the Supreme Court • special courts of justice- labour courts, tax court, intellectual property and international trade court or IP and IT court, bankruptcy court • administrative courts 28

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Court forum • place of domicile of defendant • place of location of property • place of occurrence of tort • place of committing an offence 29

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Tax issues • Revenue Code • Customs Act • Excise Tax Act • Signboard Tax Act • Land structure Tax Act • Municipality Tax Act 30

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Revenue Code • personal income tax, • corporate income tax • value added tax • specific business tax • stamp duty Double taxation agreements • taxation of income • taxation of capital 31

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Examples of frequent opinions on laws and regulations • opinion on foreign shareholding • opinion on ownership and mortgage of land building • opinion on creation and enforcement of security • opinion on investment promotion • opinion on joint venture and consortium • opinion on bankruptcy and liquidation 32

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Tax opinions • Opinion on use of a branch, an office or a subsidiary • opinion on share purchase • opinion on asset purchase • opinion on sale of goods and provision of services • opinion on royalty and service fees • opinion on dividend and interest • opinion on dividend and capital gains 33

II. SCOPE OF DUE DILIGENCE IN DIFFERENT TYPES OF TRANSACTIONS Legal Documentation • Memorandum of understanding • Term sheet • sale and purchase agreement • shareholders agreement • joint venture agreement • loan agreement • security agreement 34

III. AVOIDING PITFALLS AND SOLUTIONS 35

1. III. AVOIDING PITFALLS AND SOLUTIONS Avoiding pitfalls • All material documents have not been disclosed. • Some documents have severe legal issues. • Documents are produced periodically. • Documents are not completely provided. • No correct, true and accurate information has been given. • Complicated transactions and waxed issues • A limited period for legal due diligence • Important issues are missing. • An executive summary does not reflect significant issues. 36

1. III. AVOIDING PITFALLS AND SOLUTIONS Problems • Licences are not renewed • Failure to meet financial ratio such as debt to equity ration and interest coverage ratio • Restriction on foreign shareholding limit • Trade secret and confidential information • Infringement of intellectual property • Non-compliance with laws and regulations • Taxes are not paid or are incorrectly paid. • floating charge • non perfect security • outright and conditional assignments • Legal cases are pending and are not updated. • Business rehabilitation or liquidation of a subsidiary • Novation and assignment • Legal and beneficial interest 37

II. AVOIDING PITFALLS AND SOLUTIONS Solutions to Problems • Detailed representations and warranties • strict undertakings • escrow agreement • right of first refusal • tag-along or drag-along provision • indemnification • events of default – cross default , negative pledge, material adverse change • termination • Governing law • Arbitration or ligation 38

IV. CASE STUDY 39

1. IV. CASE STUDY Case study • lease of land owned by a state enterprise • 2 sets of bank accounts- on balance sheet bank accounts and off-balance sheet bank account • Related transactions • Acquisition or disposition of assets • Licences have not been renewed 40

Thank you for your attention SIAM CITY LAW OFFICES LIMITED 183 Rajanakarn Building, 20 th Floor, South Sathorn Road , Bangkok 10120 , Thailand Tel: (662) 676 -6668 Fax: (662) 676 -6188 E-mail : picharn@siamcitylaw. com www. siamcitylaw. com 41