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Legal analysis for

a planned business transaction


Business Contract Drafting
FHUI, March 27th 2018
arief surowidjojo
Acquisition and business integration plan
British Mining Ltd., (BML) is an energy conglomeration company listed on the London Stock
Exchange, and operates variety of energy infrastructures based on fuel, coal, gas, geothermal and
new renewable energy including wind and solar powered energy. The shareholders of BML,
particularly the minority public shareholders have a genuine concern to conserve our environment,
and proposes to the management to expand their operations in new developing countries like
Indonesia, with a notion that by improving the environmental performance of these countries, they
will also contribute to the dissemination of ideas to a much bigger part of the globe to commit to
conserve the global environment.
The management of BML raises its radar, and it seems the following proposed targets are interesting
to be acquired, and developed, in order to make a valuable impact to the improvement of
environment performance of Indonesia, and at the same token providing better return to the
investors of BML.
First
PT ABC Tbk., (ABC) is a coal mining company with operations in East Kalimantan, and operates
under a Perjanjian Karya Pengusahaan Pertambangan Batubara (PKP2B) – the Contract - with the
Indonesian Government. The Contract was signed in 1995 and shall be effective for 30 years. The
mining area contains a deposit of high calorie coals of 5.800 kcal/kg of 600 million tons, and has
been effectively mined for more than 20 years. After effective mining within such period, it has
been revealed recently by ABC geologists that the remaining deposits are basically low-ranked
coals less that 3,000 Kcal/kg which does not have enough demand from the traditional coal
markets. The majority of the mines that produce high calorie coal has been successfully mined.
ABC owns majority of shares in: (a) PT DEF (DEF), a coal mining company with a PKP2B with a
good calorie of coals with mineable period of 30 years after the date of the Contract (March
1997). DEF mining area is located in East Kalimantan, which is overlapped with a mining area of a
local government-owned company holding a mining license from the local Bupati in 2015. The
local governor has already revoked the license issued by the Bupati recently, just one day before
the last day of the Governor’s term of office. (b) Majority of shares in PT GHI (GHI) a company
with conservation forestry license covering an area of 150,000 HA natural forest in North
Kalimantan with no contribution of dividends payable to ABC since its establishment 10 years ago.
(c) Majority of shares in PT JKL, a company with a mining license to explore and exploit a probable
deposit of good quality of coals around 1 billion tons. The license was issued last year in 2017. (d)
PT MNO (MNO), a shipping company licensed to transport coals and other mining products. 6
from 10 of its vessels are being docked for the last 2 years, and MNO has been in default in
payment to its lenders for the last 3 months.
Second
PT PQR (PQR) is supplier of heavy duty equipment for mining purposes, and a main distributor of
that products which are produced by a well-knows European manufacturer. The owners of PQR
are very ambitious business people, and have used and invested substantial amounts of their
profits and allocated budget for PQR in property and other fast yielding business in Jabodetabek
area. As a result PQR started to fail its payment obligations to the principal, lenders and its
suppliers. PQR owns 200 units of used heavy duty equipment that has been returned by its failing
buyers after one-two years of usage. The market price of such used equipment is quite low due to
bad maintenance. One of its lenders is thinking about lodging a bankruptcy petition against PQR.
Third

CV STU, (STU) a company that: (a) owns land designated by the local government to be used as
seaport area located less than 30 KM from the biggest and productive mines of ABC. Due to its
corporate status, STU fails to get a seaport license from the local government and the Directorate
General of Sea Communication. The area is quite ideal for vessels transporting coals for export
markets; (b) a 28km road project from around the mining area of ABC to the seaport area,
designed to be a hauling facility of mining products around the area. Land for 24 km road project
has been cleared, and the remaining part is being negotiated with the local tribe leaders. STU is in
need of fresh money to continue the project, but due to limited security instruments that they
can provide, banks are reluctant to extend loan facility.
Queries

(1) As a lawyer assigned by BML, please advise BML management on the


structure of transactions that you think feasible to be achieved by BML (this is a
team work exercise to be done now in the class)
(2) BML agrees to confer you a proxy to act for them in negotiating a binding
MOU containing the structure consistent with your advice as set out above;
please draft that proxy (this is an individual assignment to be done now in the
class)
(3) Please draft a binding MOU for BML setting out the strategy as mentioned in
your advice (this is team work exercise to be delivered next week)
structure of the transaction
• The most effective structure of transaction for BML to achieve its business goals is to be analyzed based on: (a) how
comfortable is BML to invest in a jurisdiction where the legal systems are seen democratic, but contain potential
risks caused by uncertainties of legal policy, compromised governance practice, ineffective law enforcement,
frequent breach of environmental regulations, etc; (b) whether all the associated risks are reasonably manageable,
(c) available protection to foreign investor in the event investment could not be realized for some reason.
• If such hurdles could be managed, the most efficient structure advisable to MBL shall consist of the plan that: (a)
MBL shall acquire all or majority shares of ABC held by the majority shareholder(s), and if the number of shares
available to be acquired from the majority shareholders is not sufficient to effectively control ABC, a certain number
of shares from public shareholders need to be acquired as well so the total number of shares acquired in this
process shall be enough to control ABC effectively; (b) the change of control after acquisition may lead to an
obligation to do a tender offer under Capital market Law and OJK rules; this is not ideal, as the price maybe affected
by market sentiment, but still doable; (c) MBL shall cause ABC to agree as condition to the acquisition that (i) all
shares in DEF shall have been sold or otherwise transferred to another party, with an indemnity from the buyer that
al the risks associated with ownership of shares in DEF shall be assumed by the buyer, all to be completed before
the Closing Date (effective date of acquisition) (ii) all shares in MNO shall have been sold or otherwise transferred
to another party, with the same indemnity clause, before the Closing Date, (iii) all good machinery and equipment
of PQR shall have been purchased to increase the scale of operations of ABC before the Closing Date, (iv) ABC shall
have caused CV STU to convert its status from a CV to a limited liability company before the Closing Date, and STU
shall have settled the land issues for road construction purposes with the local tribal leaders before the Closing
Date.
structure of the transaction

• List of contracts to be entered by MBL shall based on such structure be as follows:

• Conditional Sale and Purchase of Shares Agreement between MBL and majority shareholders of ABC;
• Documents required to do tender offer under the Capital Market Law and OJK rules;
• Sale and Purchase of Shares Agreement between ABC and purchaser of shares of ABC in DEF;
• Sale and Purchase of Shares Agreement between ABC and purchaser of shares of ABC in MNO;
• Sale and Purchase of Mining Machinery and Equipment between ABC and PQR;
• Documents required to convert CV STU to become PT STU;
• Settlement Agreement between STU and the local tribal leaders on customary land issues;
• Shareholders Agreement in ABC, GHI and STU
• Closing Date Document
• Others
structure of the transaction

• After Closing Date documents are executed, the corporate structure of ABC shall become as
follows:

• MBL shall own majority shares in ABC


• All members of the BoD and BoC of ABC shall be replaced with candidates recommended by MBL
• ABC shall own majority shares in GHI
• ABC shall own sufficient number of mining machinery and equipment to operate ABC and GHI mines
• ABC shall own majority shares in STU that: (i) owns and operates sea port for transporting coal
products, (ii) owns and operates hauling road for coals produced by ABC, GHI and other coal producers
around the area
Anatomy of the Conditional Sale and Purchase of
Shares Agreement
• The Title: the term conditional refers to the fact that the agreement is subject to fulfilment of
certain condition before it could be declared effective
• The Recital: it has to be straight forward, stating the intention of MBL to acquire majority shares
in ABC, and willingness of the seller(s) to sell or transfer the shares to MBL
• The Definition: defining all the terms used in the agreement in order to cause certainty,
consistency and accurate interpretation of all terms used in the agreement
• The Conditions Precedent: stating all conditions that have to be fulfilled by the party(ies) before
the agreement could be declared effective (obtaining of regulatory, corporate and contractual
approvals, permits and licenses, satisfactory due diligence, etc)
• The Closing Date: statement on the effective date of the agreement after satisfactory fulfilment of
all conditions precedent
• The Agreement: agreeing on issues covered in slide number 2
• Acquisition Process: detailed process to be complied by the parties to consummate the
agreement
Anatomy of the Conditional Sale and Purchase of
Shares Agreement
• The Management: a clause stating how ABC is to be managed, structure and composition of the
BoD and BoC; limitation to BoD and BoC, financial control mechanism (financial audit, internal
control, audit committee, internal audit, investment and risk committee, nomination and
remuneration committee, anti corruption policy, corporate ethics and code of conduct, etc)
• The Responsibilities of the Parties: a balanced statement on responsibility of each party to
consummate the agreement
• The Representation and Warranties: a balanced statement on representation and warranties of
each party
• The Negative and Positive Covenants: a balanced statement on what should be done and what
should not be done by each party within the context of the agreement
• The Price: agreed price or its method of determining price of the shares shall be stated here;
there are possibilities that the price maybe amended due to certain agreed factors, i.e., result of
due diligence, change of law or policy, representation and warranties are breached, etc
• The Change Condition: change of certain condition could have a negative impact to the
agreement or any of the parties, for example change of law or policy, change of tariff, economic
crisis, major change in commodity price, etc. This may cause the agreement becoming null and
void or cancelable.
Anatomy of the Conditional Sale and Purchase of
Shares Agreement
• The Anti Competition: a restriction that seller(s) may not engage in any business activities that
may compete with ABC, or with other activities of MBL in Indonesia, including also a restriction
not to hire key personnel of ABC
• The Confidentiality: a provision on obligation of each party to treat any fact, data and documents
relating the agreement in strict confidence, unless it becomes a public information not caused by
act of the seller
• The Governing Law: a provision stating the governing law of the agreement; in this case,
Singapore or English Law is preferred
• The Choice of Jurisdiction: this is needed for enforcement of the agreement or decision by a
chosen authority on a dispute between the parties
• Dispute Settlement: this clause contain rules on how to settle disputers between the parties, i.e.,
by court decision or arbitration tribunal; please note that decision of a foreign court is not
admissible nor enforceable in Indonesia; so better alternative is an arbitration tribunal under SIAC
Rules, or ICC or Uncitral rules, to be held in Singapore. Foreign arbitral award is enforceable in
Indonesia through a simple process before a competent court in Indonesia,
Anatomy of the Conditional Sale and Purchase of
Shares Agreement
• The Miscellaneous provision: a provision on other things in general: communication between the
parties, severability of the agreement, limited relations between the parties, language used as the
controlling language of the agreement, obligation to use Rupiah on all payment mechanism, etc
• Attachments (as necessary), including the agreed drafts of agreements and documents to be entered after
the signing of the conditional sale and purchase of shares agreement
• Schedule