Legal Opinion of the Draft Management Service Agreement for Private Placement of Equity to be executed between Company 1. and Company

Dated: April 09, 2007

Mr. A

Company Secretary

Company 1

House no. 8/A, Road no. 143

Gulshan – 1, Dhaka – 1212

Dear Sir,

Re:      Legal Opinion of the Draft Management Service Agreement for Private Placement of Equity to be executed between Company 1. and Company 2.

We refer to your letter dated 02 April 2007 on the above subject.

We have perused the Draft Management Service Agreement (“the Agreement”) for Private Placement of Equity to be executed between Company 1. (“STS”) and Company 2. (“JKSB”).

According to Rule 2 (j) of the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules dated 24.04.1996 (“the Merchant Banker Rules”):

““Merchant Banker” means any person who on behalf of his client manages the client’s fund, or does underwriting business or as an underwriter, manager or adviser is connected with securities or as a Corporate Adviser provides services in order to perform all works in relation to issue management.”

And according to Section 2 (l) of the Securities and Exchange Ordinance, 1969, “Securities” includes Stock, transferable share, script, note, debenture etc issued or to be issued by or for the benefit of a company, whether incorporated in Bangladesh or not.

After perusal of the Agreement it appears that STS will appoint JKSB as its exclusive agent in Sri Lanka to market and promote the private placement of thirty five million ordinary shares of BDT 10.00 each to foreign investors. We are of the opinion that the obligations of JKSB under the Agreement may fulfill the definition of “Merchant Banker” under the Merchant Banker Rules.

If the work of JKSB falls under the definition of “Merchant Banker” then according to Rule 3 of the Merchant Banker Rules, JKSB would require registration certificate from the Securities and Exchange Commission (“SEC”).

However, we would also like to point out that according to Rule 5(2) of the Merchant Banker Rules, no stock broker is eligible to get a registration certificate of a merchant banker from SEC. And from perusal of the Agreement we find JKSB is a stock broker in Sri Lanka.

So we are of the opinion that JKBS may require the permission of SEC of Bangladesh to act as merchant banker because even though JKSB would be doing their business in Sri Lanka they would in fact be dealing with securities issued in Bangladesh. We are also of the opinion that there is a possibility that SEC may refuse to provide Merchant Banker certificate to JKSB because JKSB is a stock broker.

Subject to our above opinion, we are providing our comments on the Agreement below:

Clauses/

Paragraph

 Comments.

Clause 1 Please delete Clause 1 and replace it with the following:

“1. Appointment

STS hereby appoints JKSB, for the duration of the Term of this Agreement, to market and promote the private placement of thirty five million ordinary shares of BDT 10.00 (Taka 10) each of STS (“the Shares”) to the clients of JKSB with effect from the Effective Date of this Agreement.”

please delete the words “with effect from Effective Date hereinafter mentioned” and replace it with “with effect from the Effective Date hereinafter defined. ”
Clause 2 Please delete Clause 2 and replace it with the following:

“2.  Condition Precedent

2.1 Condition Precedents of STS

2.11 STS shall on or before _________, 2007 (“the Effective Date”) confirm that the requisite approvals from the relevant authorities have been obtained for the following activities:

a)      Approval from the Securities and Exchange Commission of Bangladesh for:

i)                    the issue of capital i.e. the Shares, outside Bangladesh

ii)                   the pricing of the issue

iii)                 the private placement of the Shares through JKSB in Sri Lanka

b)      Approval from Bangladesh Bank for the outward remittance of the fees payable to JKSB as per Clause 3.

2.12  STS shall on or before the Effective Date furnish an on-demand, unconditional, irrevocable bank guarantee from an international bank in Sri Lanka for the sum of LKR. 29,000,000.00/- (Sri Lankan Rupees Twenty Nine Million) only to be valid for a period of ____________ months to secure the consideration payable to JKSB under this Agreement.

2.2 Condition Precedents of JKSB

2.21 JKBC shall on or before the Effective Date confirm that the requisite approvals from the relevant authorities have been obtained for the following activities:

a)      Approval from the relevant Securities and Exchange Commission of Sri Lanka or any other relevant authority for marketing and private placing the Shares, which are situated offshore to their Clients in Sri Lanka or elsewhere.

b)      If JKBS’s obligations under this Agreement falls under the definition of ‘Merchant Banking’ under the laws of Sri Lanka, then JKBS shall acquire the approval from the relevant Sri Lankan Authority to act as a Merchant Banker.

c)      Approval from the Central Bank of Sri Lanka for the inward remittance of the fees payable to JKSB by STS as per Clause 3.

2.22 JKBC shall on or before the Effective Date confirm that the requisite approvals from the Securities and Exchange Commission of Bangladesh to act as merchant banker in relation to securities i.e. the Shares issued in Bangladesh by STS.”
Clause 3 In Clause 3(c) the term “local issue manager” has been used. Please define this term.

Also ensure that STS agrees to the consideration payable to JKSB under this clause.
Clause 4 The conditions contained in Clause 4.2.1, Clause 4.2.3 and Clause 4.3 are already incorporated in Clause 2.1 as such we suggest you to delete these clauses. After this, Clause 4.2 should be revised as follows:

“4.2  Obtain the relevant approval from Bangladesh Bank for the outward remittance of the dividends and/or other capital payable by STS to the eventual investors of the Shares (“the Investors”).”

In clause 4.4, the term ‘local Issue Management agents’ has been used but in Clause 3(c) the term “local issue manager” has been used. Please decide which term to use among these two and use that term uniformly throughout the agreement.

Please delete Clause 4.5 and replace it with the following:

“4.5  Issue share certificates or documents in lieu of certificates to the Investors.”
Clause 5 The obligations of JKBS in clause 5 is vague and limited to a single line. We are of the opinion that STS should ask JKSB to submit a letter of proposal in which JKSB shall describe their capabilities and the specific services that JKSB is offering to provide to STS.  The letter of proposal should also give the list of clients that JKSB currently has and who among those clients have a possibility of becoming Investors in the Shares of STS.

Relying on the letter of proposal, Clause 5 should be re-drafted.
Clause 6 Please delete  Clause 6 and replace it with the following:

“6. Representations and Warranties of the Parties

Each Party hereby represents and warrants to and undertakes with the other Party and its successors in title as follows:

a)      it is duly incorporated and validly existing under the laws of their relevant country;

b)      it has the legal right and full power and authority to enter into and perform this Agreement and any other documents to be executed by it pursuant to or in connection with this Agreement, which when executed will constitute valid and binding obligations on it, in accordance with their terms;

c)      the execution and delivery of, and the performance by it of its obligations under, this Agreement and any other documents to be executed by it pursuant to or in connection with this Agreement will not and are not likely to:

i)       result in a breach of any provision of its memorandum or articles of association; or

ii)     result in a breach of, or give any third party a right to terminate or modify or result in the creation of any Encumbrance under, any agreement, licence or other instrument or of any order, judgment or decree of any court, governmental agency or regulatory body to which it is a party or by which it is bound; and

d)      all corporate action required by it validly and duly to authorise the execution and delivery of, and to exercise its rights and perform its obligations under, this Agreement and any other documents to be executed by it pursuant to or in connection with this Agreement has been duly taken.

e)      all requisite approvals and permissions for the execution of this agreement have been obtained from the proper authorities.”
Clause 7 Delete Clause 7 and replace it with the following:

7. Confidentiality

7.1  Each Party shall treat as confidential and not disclose or use any information received or obtained as a result of entering into this Agreement.

7.2  Clause 7.1 shall not prohibit disclosure or use of any information if and to the extent:

i)       the disclosure or use is required by law, any regulatory body or the rules and regulations of any recognised stock exchange.

ii)     the disclosure is made to professional advisers of the Parties on terms that such professional advisers undertake to comply with the provisions of Clause 7.1  in respect of such information as if they were a party to this Agreement.

iii)    the information becomes publicly available (other than by breach of this Agreement);

iv)   the other Party has given prior written approval to the disclosure or use;

v)     the information is independently developed the disclosing party.”
Clause 9 Please delete clause 8 and replace it with the following:

“8. Indemnity

In event of default of any of the terms or conditions of this Agreement, the defaulting party shall indemnify the non defaulting party for any loss, damage or expense incurred and/or suffered by such non defaulting party in consequence of such default.”
Clause 8.1 Please note that according to clause 8.1 (B) if a notice is posted, then at the expiry of 7 days after the envelope containing the same was delivered into the custody of the postal authorities, the notice shall be deemed served, even though the party to whom the notice was sent does not receive it within 7 days or never receives the notice at all. Please check whether STS agrees to this clause.
Clause 8.4 Please note that, according to Clause 8.4 (II), the arbitration proceedings shall be governed by the UNCITRAL Rules and shall be held in Sri Lanka. Please check whether STS agrees to this clause. We are of the opinion that the place of arbitration may be a third neutral country.

Also note that, according to Clause 8.4 (III), the Agreement shall be governed by and construed in all respect by the laws of Sri Lanka. We are of the opinion that the laws of Sri Lanka is not appropriate because STS and their legal representatives may not have knowledge about this law. We suggest that the laws of a neutral third country should apply, regarding which the both the parties have common knowledge, for example the Laws of England and Wales.
Insertion of a new Clause 8.10 Please note that the agreement does not have any defined term during which it shall remain effective. Without a defined term, STS would find it be very difficult to enforce the agreement, for example STS may find it very difficult to allege that JKSB has caused delay in performing their obligations under the Agreement. As such we suggest that after Clause 8.9 you should add the following clause 8.10:

“8.10  Term

The Agreement shall remain in force for _________years from the Effective Date (“the Term”). JKSB shall perform their obligations under Clause 5 within this Term.”

Apart from the above observations, the terms and conditions of the Agreement are otherwise in order.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,

_____________________

Barrister-at-Law

The Lawyers & Jurists

M.L.Hotel Tower Ltd, 208, Shahid Syed Nazrul Islam Sarani,

Bijoy Nagar, Dhaka-1000.

www.lawyersnjurists.com

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