(
Continued
)
Transaction documents required in an Offshore Acquisition
An offshore acquisition should at least include the following document: 1) Series A Preferred Share Purchase Agreement (“SPA”); 2) Shareholders Agreement (“SHA”); 3) Amended and Restated Memorandum and Articles of Association (“Amended M& AA); 4) Restructuring documents (which normally includes service provider agreement, intellectual property right license agreement, equity pledge agreement, and call option agreement and so on.); and 5) the documents regarding employee stock option plan.
SPA is used by a foreign investor to acquire PRC founder’s equity interest in the SPV under which the foreign investor will enjoy preferential rights, such as the right of information, liquation preference, the right of anti-dilution, the protective provision, rights of redemption, right of drag-along, co-sale right and dividends payment. If a lawyer represents PRC founder or the target company, he should know how to protect the PRC founders or target company under the aforesaid preferential rights. Also, he should be very careful in dealing with the warranties and representations made by his client and make extreme sure the warranties and representations are true, complete and accurate.
If a lawyer act on behalf of the foreign investor, he should make sure that the conditions to the closing as stipulated in SPA should be satisfied prior to closing and the derivatives evidencing the satisfaction of the conditions be delivered to the foreign investor.
SHA give the foreign investor broad-range rights, such as registration rights, right of first refusal etc., to assure that the interest of the foreign investor has been fully protected.
M&AA is a requisite document which states the basic information of the company, such as the company’s name, registered address, highest organ of power, composition of highest organ of power, meeting, share capital and so on. With the equity transfer in the company, M&AA should be amended to reflect the capital increase of the company due to investment by the foreign investor, as well as the special rights for the foreign investor which has been agreed in SPA and SHA.
Among the restructuring documents, service provider agreement or intellectual property right license agreement will be used by WFOE to extract profit from LLC under which LLC should pay service fee or license fee to WFOE. Equity pledge agreement will be used by WFOE to control LLC and guarantee the payment of the service fee or license fee by LLC under service provider agreement or intellectual property right license agreement. Under call option agreement, PRC founder is required to grant WFOE (or one or more of the persons designated by WFOE) an exclusive option to purchase all or part of the shares of PRC founder in LLC.
As to a lawyer’s work on VIE structure acquisition, he/she can help their client to conduct due diligence investigation, design and establish VIE structure (including, but not limited to, establishing a special purpose vehicle, forming the WFOE in China, advising particular legal issues regarding the VIE structure, etc.), represent the client in negotiations with the VC funds on Shareholder Agreements and Series A Preferred Share Purchase Agreement(including, but not limited to, reviewing the term sheet and negotiating on the clauses regarding the right of information, liquation preference, the right of anti-dilution, protective provisions, the right of redemption, the right of drag-along, co-sale right, and dividends payment, etc. ), assist the client in fulfilling closing duties, draft restructuring agreements (including, but not limited to, service provider agreement, intellectual property license agreement, equity interest pledge contract, call option agreement, etc), help the clients to carry out SAFE Circular 75 Registration (including, but not limited to, preparing the relevant documentation and advising the relevant issues), draft and revise the employee stock option plan, help the client to draft the resolutions of board of directors regarding the VIE acquisition, help the client to do post-closing work, etc.
(
to be continued
)
Adam Li