Acquisition and preparing for indicative agreements

1. Acquisition and preparing for indicative agreements Business Contract Drafting Arief Surowidjojo October 9, 2012

2. Purposes and objective of acquisition • Market entrance or expansion • Increase production capacity • Exploring market for new products • Cost reduction on production process, marketing, human resources, and access resources • Strengthening financial positions • Increasing bargaining positions in facing lenders, regulators, suppliers, distributors, and other stakeholders • Shorten the geographical distance to important resources • Acquiring products • Combine products or technology • Obtaining most tax efficient operations • Securing resources • Acquiring management and human capitals • Business diversification

3. Acquisition and corporate reorganization How it is done • Vertical integration • Horizontal integration • Conglomeration Legal forms of corporate reorganization • Acquisition • Merger • Consolidation • Spin-off • Other forms of acquisition: technology, management, market share, distribution control, human capital, others

4. Acquisition drafting process • Gathering internal general interests • Facts finding process, selection of targets, desk studies, field research, feasibility studies, business planning, form of cooperation, determination of roles in the cooperation, recommendation to proceed • Exchange of interests with the targets • Prepare non-disclosure agreement • Prepare and negotiate MOU on indicative agreements between the parties • Due diligence process starts • Due diligence reports submitted • Legal, financial, business position are determined, list of issues prepared • Negotiation technique and strategy are determined • Negotiation of Conditional Sale and Purchase of Shares Agreement commences • Drafting process of the CSPSA

5. acquisition drafting process • Issues in drafting MOU • Names do not matter: MOU, terms sheet, letter of intent, joint statement, etc, the purpose is more important – expressing interests to negotiate a business deal on a set of basic principles • Binding or not binding • Exclusive or not exclusive • Time limit or fulfillment of certain conditions • Sufficiency of facts and assumptions used to a closer commitment • Due diligence level • Cost distribution • Clear ideas on the form of cooperation or business relationship • Exit clause • Good faith as equally informed parties • Confidentiality • Enforcement level • Indemnity

6. acquisition drafting process • Structure and content of MOU • Parties involved • Conditions precedent: due diligence, studies, research, corporate and regulatory approvals, etc • Expression to be binding or not • Exclusivity • Term and termination • Basic reference for negotiation: subject, object, pricing, time frame etc • Cost sharing • Indemnity • Confidentiality • Dispute settlement • Governing law

7. MOU drafting exercise Sullivan Mining Company (SMC) , a coal mining company based in the UK decided to expand its operations in Asia Pacific. One of the purposes is to supply coals to Indian power companies with medium-high-ranked calorie coals. SMC has a long history of operation in India. SMC wishes to take over a couple of mining assets in Indonesia for implementing such business plan. SMC is negotiating with PT Kutai Energy (KE), a coal trading brokerage company that has access to several mining companies in Kalimantan area, including PT Intan Resources with 50 million tons of reserve with the average of 5.900 calorie coals, PT Bara Kalteng with 80 million tons of reserve with 6.200 calorie coals, and PT Daya Mitra with 25 million tons of reserve with average of 5.500 calorie coals. KE has a mandate to negotiate from Mr. Safiuddin, the majority legal owner of the 3 companies. Mr. Safiuddin, however, is holding the shares in the 3 companies under a nominee arrangement with beneficial owners of the 3 companies, one of them is Mr. Achmad Bahar, the regent of West Kutai, a regency where the mines are located. KE insists that SMC shall acquire the existing shares of the 3 companies, and Mr Saifuddin will remain holding at least 30% of equity in each company. (a) as SMC’s counsel, please help them in identifying issues or problems if SMC decides to acquire the interests in the 3 companies, (b) please draft MOU between SMC and the owner of the target companies.