Summary
AB Advertising Corporation plans to acquire VietAd, a Vietnam-based company. Key considerations include ensuring clear ownership transfer, addressing improperly issued invoices, and planning Ms. Mais role post-acquisition. Conditions precedent should include resolving invoice issues and transferring logo rights. To enforce warranties, AB should consider warranty and indemnity clauses, escrow accounts, and personal guarantees. For retaining Ms. Mai, AB should include non-compete clauses, detailed employment contracts, and penalty clauses. Consult a local legal expert for detailed advice.Full Conversation
A Japan-based investor named AB Advertising Corporation (AB) intends to acquire *% of the charter capital of a Vietnam-based company named VietAd (Target) from the Target’s owner.
AB would like to seek your legal assistance in the above proposed transaction.
The due diligence in June * onto the Target reports the following key findings:
*. The Target is a single member limited liability company, set up in * and engaged mainly in advertisement services, and being solely owned by Ms Mai – a Vietnamese.
*. Ms Mai is registered as the founder of the Target, and is currently the Target’s General Director cum legal representative. Since the company’s birth, Ms Mai has been the key person contributing the most decisive factor in the Target’s growth.
*. The Target is using a logo for all of its operation “VietAd”. This logo is registered for protection at the National Office of Intellectual Property of Vietnam under the name of Ms Mai.
*. The Target has some existing retainer contracts with some important customers, which is one of the main sources of the Target’s revenue in recent years.
*. Some invoices were not properly issued.
*. From the DD findings, AB has concern about the risks and liabilities relating to the Target. However, for business reasons, AB still desires to acquire AB. Thus, AB wishes that you advise on possible legal deal structure and key deal terms.
Please advise.
Based on the information provided, here are some general key points AB Corporation should consider:
- Clear Transfer of Ownership: Ensure that Ms. Mai fully transfers all her rights and interests in the company, including the logo registered under her name.
- Proper Due Diligence: Address the issue of improperly issued invoices to avoid future legal trouble.
- Post-acquisition Plan: Consider the role of Ms. Mai post-acquisition as she plays a key role in the company.
- Review Existing Contracts: Check the terms of existing contracts with clients for any potential risks.
Please consult with a local legal expert to structure the deal.
*. Assuming AB decides to proceed with the transaction following the deal structure you’ve advised. Please propose the key conditions precedent (CP) for the transaction.
The key conditions precedent (CP) for the transaction could include:
- Finalizing a clear written agreement of the transfer of ownership from Ms. Mai to AB Corporation.
- Resolving all issues related to improperly issued invoices.
- Ensuring the transfer of the "VietAd" logo rights to AB Corporation.
- Ms. Mai's agreement to continue in her role post-acquisition (if applicable).
- Review and acceptance of terms in existing client contracts.
*. Given the compliance status of the Target and the reliance on Ms. Mai's warranties, AB wishes to have optimal protection in case a warranty turns out to be untrue or incorrect. Please propose a mechanism to enhance the enforcement of these warranties.
To enhance the enforcement of warranties, AB could consider:
- Including a detailed warranty and indemnity clause in the contract.
- Setting up an escrow account for a period to cover potential breaches.
- Requiring a warranty insurance.
- Obtaining personal guarantees from Ms. Mai.
Please consult a local legal expert for a detailed approach.
*. AB wishes to retain Ms Mai to work solely for AB for at least 10 years subsequent to the Closing, and not to work for AB’s competitors for at least 5 years after leaving AB.
Any legal risks/ legal tools/ legal terms AB should consider?
AB should consider:
- Non-compete clause: Restricting Ms. Mai from working with competitors after leaving AB.
- Employment contract: Detailing terms, conditions, and duration of Ms. Mai's employment.
- Penalty clauses: For breach of contract.
- Consulting a local legal expert: For proper drafting and execution of these terms.
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