Legal Opinion regarding the share sale agreement and the tripartite agreement related Company

Mr. Z

Address….

Dear Sir,

Re: Legal Opinion regarding the share sale agreement and the tripartite agreement; A/C COMPANY 1.

We refer to your letter dated April 09, 2007 on the above subject.

From perusal of your letter, it appears that COMPANY 1 is one of the existing clients of Company 2. COMPANY 2 has been providing COMPANY 1 lease facility. We have been informed that the project and the land of the project of COMPANY 1 are mortgaged to COMPANY 2 as security.

Recently the board of directors of COMPANY 1 have resolved to sell and transfer all the shares of the existing shareholders of COMPANY 1 (“the Sellers”) to 7 purchasers (“the Purchasers”) and the Sellers have already executed a Deed of Agreement dated 05 April 2007 with the Purchasers for selling all the shares of COMPANY 1 to the buyer.

To pay-off the liabilities of COMPANY 1 with COMPANY 2, to release the mortgaged security and to transfer the shares, COMPANY 1, the Sellers and the Purchasers have approached COMPANY 2 with a proposal to execute a tripartite agreement.

In these circumstances, you have requested us to:

(a)    Check the agreement between the Sellers and the Purchasers.

(b)   Check the tripartite agreement.

(c)    Give our opinion about the agreements so that the interest of COMPANY 2 can be protected.

(d)   Include any clause that is required to protect the interest of COMPANY 2.

OUR OPINION:

THE DEED OF AGREEMENT DATED 05 APRIL 2006

We have perused the Deed of Agreement dated 05 April 2006 for sale of the entire shares of COMPANY 1 (“the Agreement”), which was supposedly executed between the existing shareholder of COMPANY 1 and the Purchasers. Please note that the Agreement is not a standard Share Sale Agreement, which contemplates and documents the whole implementation of the transactions leading to the transfer, from pre-closing conditions to be fulfilled prior to transfer and post closing conditions to be fulfilled after transfer. Moreover, the agreement also does not contain any schedule identifying the shares which are to be sold by the shareholders of COMPANY 1; and purchased and transferred to the Purchasers. Although the name of 10 existing shareholders are mentioned at the beginning of the Agreement as 1st Party, only 7 Shareholders have actually signed the Agreement. So the Agreement was not properly executed and as such has no legal force. It is our opinion that COMPANY 2 should ask the existing shareholders to execute a proper Share Sale Agreement with the Purchasers.

THE TRIPARTITE AGREEMENT

Although the outstanding overdue is owed by COMPANY 1 to COMPANY 2, COMPANY 1 has not been made a party to the tripartite agreement. To protect the interest of COMPANY 2, we are of the opinion that the agreement should be a four party agreement between COMPANY 1, the existing shareholders of COMPANY 1, the Purchasers and COMPANY 2. We suggest you to add the particulars of COMPANY 1 under the particulars of the parties.

In the first preamble it is stated that Mrs. A, on behalf of the Vendors and Mr. X, on behalf of the Purchasers shall deal with all matters with COMPANY 2. Please ensure that Power of Attorneys have been executed by the Vendors and the Purchasers appointing Mrs. A and Mr. X respectively to act on their behalf.

In the second preamble it is stated that “the VENDORS have decided collectively to transfer their entire shares to the PURCHASERS”. Here, shares have not been defined. We suggest that, in the first line of the second preamble, after “entire shares” the words “owned in COMPANY 1 Chemical Industries Limited” should be added.

In the third preamble it is stated that “the VENDORS have outstanding overdue to COMPANY 2 amounting to maximum of Tk. 84,24,079/-”. This is incorrect. The Vendors do not have outstanding over due to COMPANY 2, it is COMPANY 1 which has outstanding over due to COMPANY 2. Therefore, we suggest you to delete the third preamble and replace it with the following:

“WHEREAS COMPANY 2 granted a __________ facility of Tk. _____________ (Taka _______________________________) only to COMPANY 1 against securities, inter alia, (……………………………………..insert the securities………………………………….) against the properties defined in Schedule A, in accordance with the terms and conditions of the _____________ Agreement/Sanction Letter dated ______________, 200__ (“the Facility”). The total liabilities of COMPANY 1 with COMPANY 2 under the Facility as on the execution date of this agreement i.e. on _________, 2007 (“the Execution Date”), stands at Tk. _____________ (Taka _______________________________) only (“Total Outstanding Liability”).”

Please delete preamble four and replace it with the following:

“WHEREAS on the Execution Date, the Purchasers, on behalf of the COMPANY 1, shall pay to COMPANY 2 Tk. _____________ (Taka __________________________________) only as payment of the Total Outstanding Liability. This payment by the Purchasers to COMPANY 2 shall for all purposes be treated by COMPANY 2 as payment of the Total Outstanding Liability in full as between COMPANY 1 and COMPANY 2.”

In preamble five, in line two and four replace “loan” with “Facility”, in line five replace “the Vendors company” with “COMPANY 1” and in line six delete “directly and accordingly issued Letter of Consent to the Vendors on …………………..” and replace with “of the Outstanding Liability. After adjustment of the Outstanding Liability, COMPANY 2 shall execute a Memorandum of Satisfaction, acknowledging the adjustment of the Total Outstanding Liability”.

Please delete preamble six and replace it with the following:

“WHEREAS the VENDORS shall handover the entire shares and liabilities of COMPANY 1 to the PURCHASERS only after being fully satisfied that the PURCHASERS have paid to COMPANY 2 the Total Outstanding Liability and after the PURCHASERS have paid the rest of the purchase amount in accordance with the terms and conditions of the Deed of Agreement dated ____________”

In Article – 1 it is stated that the vendor company and the Purchaser collectively agreed to fix the price of the entire assets of Company, including land, buildings and machineries, movables etc including Bank Loan with COMPANY 2 at Tk. 180.00 lac. This article is not properly drafted. From perusal of the documents it is apparent that that the Buyers are not buying the assets of COMPANY 1, they are buying all the shares of COMPANY 1, i.e. COMPANY 1 as a company. Upon acquisition of all the shares of COMPANY 1, the Buyers would have acquired all the assets and liabilities in the name of COMPANY 1. Moreover COMPANY 1, the vendor company cannot agree to fix the price of its own shares, that has to be fixed by the shareholders of COMPANY 1. We suggest you to delete Article – 1 and replace it with the following:

“Article – 1

The Vendors and the Purchasers have collectively agreed to fix the price of the entire shares of COMPANY 1 at Tk. _____________ (Taka _______________________) only (“the Share Price”), which does not include the Total Outstanding Liability owned by COMPANY 1 to COMPANY 2.”

Please delete Article – 2 and replace it with the following Articles:

“Article – 2

That COMPANY 1 represents, confirms and undertakes  that :

i.                     its total liabilities with COMPANY 2 according to the terms and conditions of the ___________ Agreement/Sanction Letter dated ______________, 200_  as on the execution date of this agreement i.e. on _________, 2007, stands at Tk. _____________ (Taka ______ ____________________________) only (“Total Outstanding Liability”);

ii.                   it is the sole and absolute owner of the properties described in Schedule A (“the Scheduled Properties”) and no other banks, financial institutions, companies or persons (except for COMPANY 2) has any interest of any kind whatsoever on the Scheduled Properties, whether by way of security interest, lien or any other kind of encumbrances;

Article – 3

On the execution date of this Agreement i.e. on ____________, 200_, the Purchasers, on behalf of COMPANY 1, shall pay to COMPANY 2 Tk. _____________ (Taka __________________________________) only as payment of the Total Outstanding Liability. This payment by the Purchasers to COMPANY 2 shall for all purposes be treated by COMPANY 2 as payment of the Total Outstanding Liability in full as between COMPANY 1 and COMPANY 2.

Article – 4

Within 7 (seven) working days of adjustment of the Total Outstanding Liability by the Purchasers with COMPANY 2, COMPANY 2 shall:

i)                    discharge/redeem the (…………………insert the securities………………………)  created on the Scheduled Properties by executing a deed of Redemption and return to COMPANY 1 all original and certified documents related to the Scheduled Properties.

ii)                   Allow revocation of the Power of Attorneys given by the first party and/or third party mortgagors and release all the machineries and equipments and movable properties which are charged with the Registrar of Joint Stock Companies and Firms against the Facility.

iii)                 Execute a Memorandum of Satisfaction acknowledging the adjustment of the Total Outstanding Liability;”

The rest of the articles should be re-numbered accordingly.

In line four of the existing Article – 3, please delete “as instructed by the Purchasers” and replace it with “in accordance with the terms and conditions of the Deed of Agreement dated ____________”

The existing Article – 4 incorporates the share price to be paid by the Purchasers to the Vendors. As such this Article should be a part of the Share Sale Agreement not this four party agreement. We suggest you to delete this article and replace it with the following article related to representation and warranties:

“Article – 5

Each Party hereby represents and warrants to and undertakes with the other Parties:

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

b)   The execution and delivery of, and the performance by each party of that party’s obligations under, this Agreement and any other documents to be executed by that party pursuant to or in connection with this Agreement will not and are not likely to 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 that party is a party or by which that party is bound;”

The existing Article – 10 incorporates obligations as between the Vendors and the Purchasers in relation to the sale of the shares as such this Article should be a part of the Share Sale Agreement not this four party agreement. We suggest you to delete this article and replace it with the following articles:

“Article – 6

This Agreement constitute the entire agreement amongst the parties and save as otherwise expressly provided no modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless made in writing specifically referring to this Agreement and duly signed by the parties hereto.

Article – 7

The parties shall try to resolve their dispute amicably, failing which the Court of Bangladesh shall have jurisdiction to resolve such dispute”

We believe that the agreements were drafted by the Lawyer of the Vendors. We suggest COMPANY 2 to ask the Vendors to make the suggested changes through their Lawyer.

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

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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