When Chinese enterprises undertake corporate mergers and acquisitions overseas, they need to sign a series of legal documents in order to complete the transaction smoothly. This article takes the M&A transaction process as its timeline and briefly outlines the key legal documents that the relevant parties—especially the acquiring party—need to sign throughout the entire overseas M&A process, as well as the major legal issues associated with these documents. Generally speaking, in all M&A transactions, the legal documents that the parties involved need to sign can be categorized into two main types: the primary transaction documents and the related ancillary transaction documents. The primary transaction documents define the terms and conditions of the main transaction, including the transaction price and the method of delivery; whereas the ancillary transaction documents are a series of agreements signed specifically to support and facilitate the achievement of the objectives set forth in the primary transaction documents. The aforementioned... “ Master Transaction Document ” and “ Supporting Transaction Documents ” Specifically, which documents should be included depends on factors such as the purpose of the transaction, the nature of the transaction, the circumstances of the transaction counterparties, and the transaction model. Additionally, it should be noted that what is referred to in this article... “ Corporate Mergers and Acquisitions ” , referring only to the acquisition of company equity.

1 　Initial stage

Non-Disclosure Agreement / Confidentiality Undertaking In the initial stage of the transaction, the owner of the underlying asset, equity, or business, or the shareholders of the target company—hereinafter collectively referred to as “…” for the sake of simplicity in this document— “ Seller ” ) The acquiring party needs to disclose relevant information about the transaction target. Therefore, as is customary, before the seller discloses such information, the seller will require the potential acquirer to provide a unilateral “Confidentiality Undertaking” or sign a “Confidentiality Agreement” with the potential acquirer. Considering that, during the course of the transaction, the acquiring party may also need to disclose certain sensitive information of its own—for example, financial and credit-related information to demonstrate its ability to perform under the agreement—we, as counsel for the acquiring party, would advise the acquiring party to request that the seller also assume corresponding confidentiality obligations. In such circumstances, a preferable solution would be for both parties to sign a bilateral “Confidentiality Agreement” or for both parties to mutually execute identical “Confidentiality Undertakings.”

Tender document / Quotation Letter 　In many merger and acquisition transactions, the seller—seeking to secure the best possible bid—is highly inclined to select the acquiring party through a bidding process or competitive negotiations. Many prominent deals in the international market, as well as numerous transactions we have handled as lawyers, have been conducted in this manner. Under this transaction model, the acquiring party is required to submit a bid document (in the case of a more formal bidding procedure) or a letter of offer (for general competitive negotiations and the like). What these documents have in common, from a legal perspective, is that they all constitute offers made by the acquiring party and, during their validity period, are legally binding on the acquiring party itself. In other words, once the counterparty accepts the substantive terms contained in these documents—such as the transaction price—the acquiring party may not subsequently withdraw its offer.

2 The initial stage of the negotiation

Security Deposit Agreement Sometimes, the seller will act as the acquirer. / The bidder must submit a security deposit of a specified amount as a prerequisite, and the relevant bidders will be granted access for a certain duration (e.g., ...). 1-3 an exclusive negotiation period lasting several months or longer. At this stage, it becomes necessary for both parties to sign a “Deposit Agreement.” In this Deposit Agreement, the nature of the deposit, the conditions for its return, the duration of the exclusive negotiation period, and the conditions for its termination must be clearly defined.

Memorandum After preliminary discussions, the two parties to the transaction may reach a certain initial consensus. If both parties deem it necessary to document this consensus by signing relevant documents, the document typically signed is: “ Memorandum ” or similar documents. In the memorandum, both parties can outline all the agreements reached at the time regarding the transaction, such as the details of the transaction, the transaction model, and the preconditions for the transaction. It’s important to note that, unless otherwise specified, memoranda generally serve only to record the mutual agreements on the transaction and carry no legal enforceability in their own right. Consequently, there is no such thing as one of the signatories being in breach of the memorandum. “ Breach of Contract Liability ” Question.

List of Terms As is customary in merger and acquisition transactions, once the two parties enter a relatively substantive negotiation phase, in order to make the negotiation process more efficient, the business personnel of both parties—rather than legal staff or external legal advisors—typically first negotiate the specific commercial terms of the transaction, such as the transaction price, payment arrangements, and closing conditions, and then proceed with... “ List of Terms ” The method involves documenting and describing the consensus reached by business personnel from both sides. In terms of its importance, the schedule of terms is one of the most critical documents in the entire transaction. However, generally speaking, the schedule of terms is not a formal contract and does not include the types of provisions typically found in a formal contract—such as agreements on applicable law and dispute-resolution mechanisms. Therefore, the schedule of terms carries no legal binding force. Compared to a memorandum, which also lacks legal enforceability, the primary difference between the two lies in the following: While memoranda tend to be more general and vague in their record-keeping, the schedule of terms usually provides a very clear and specific description of the commercial terms, already taking on the initial form of a main transaction document.

3 Substantive negotiations, deal confirmation, and closing phase

Master Transaction Document After the parties to the transaction have achieved results through substantive negotiations, they can use the terms list as a blueprint to draft the main transaction document. As mentioned earlier, depending on the specific nature of the transaction, the main transaction document may be... — Equity transfer agreements, asset transfer agreements, business transfer agreements, capital increase agreements, and the like. The master transaction document is the most critical legal document in the entire transaction, and its importance cannot be overstated. Therefore, those involved—especially lawyers—must exercise the utmost sense of responsibility and pay meticulous attention to the design of the transaction logic as well as the wording of specific clauses. Generally speaking, the most important provisions in the master transaction document are those concerning the seller. / Representations and Warranties of the Target Company, Precondition for the Agreement to Take Effect, Precondition for Payment, Precondition for Closing, and so forth.
Custody Account Agreement To ensure the safe and smooth execution of payments under the main transaction documents, the parties to the transaction typically arrange for payments by establishing an escrow account. To this end, the parties to the transaction need to jointly sign an appropriate “Escrow Account Agreement” with the escrow agent designated by all parties involved. The “Escrow Account Agreement” should specify the conditions for establishing the escrow account, as well as the specific conditions and milestones under which the escrow bank (or other escrow agent) will remit the corresponding funds to the seller.

Trademark / Technology Licensing Agreement, Trademark / Technology transfer agreements, etc. If the nature of the main transaction is a business transfer, it will typically involve trademarks and... / or technology licensing agreements, trademarks, and / or technology transfer agreements, etc. By signing such agreements, the acquiring party can obtain the right to use or other rights related to relevant trademarks or technologies that are necessary for operating the target business.

Supplementary Agreement to the Original Shareholders’ Agreement If the nature of the principal transaction is either an equity transfer or a capital increase, the acquirer will become a new shareholder of the target company upon completion of the transaction. Therefore, both parties need to sign a corresponding agreement—a supplementary agreement to the original shareholders’ agreement of the target company—to confirm the acquirer’s status as a new shareholder and to define the relationship between the new shareholder and the existing shareholders. Of course, if the acquirer becomes the sole shareholder of the target company by acquiring all the equity held by the target company’s existing shareholders, there is no need to sign the aforementioned agreement. In such a case, the acquirer only needs to complete shareholder registration with the relevant commercial registration authority in accordance with the applicable requirements of the laws and regulations of the target company’s place of incorporation.

Updated Articles of Association Similarly, if the main transaction involves the transfer of equity or an increase in capital, it will also be necessary to update the target company’s original articles of association, and the updated articles must be signed by the acquiring party as well as by the other shareholders of the target company. If, after the completion of the transaction, the acquiring party becomes the sole shareholder of the target company, then only its signature on the aforementioned documents will suffice. As for other ancillary documents, it is important to pay attention to potential issues and avoid common pitfalls. Particular care should be taken in coordinating the main transaction documents with the ancillary transaction documents. There should be an intrinsic linkage between the main transaction documents and the ancillary transaction documents. Ideally, the coordination of these documents should tightly weave them together around the purpose, logic, process, and key milestones of the main transaction, forming a seamless legal framework in which each document is closely interconnected with the others. Common approaches to such coordination include: Setting preconditions for effectiveness or closing: Specifically, requiring the signing of certain legal documents—or their appropriate entry into force (e.g., becoming effective and remaining valid for a specified period)—or their proper performance (e.g., the seller fulfilling certain debt agreements within a specific timeframe) as prerequisites for the main transaction documents to become effective or for payments or deliveries under the main transaction documents to proceed. Establishing cross-default clauses or termination clauses: Including cross-default provisions among the relevant legal documents— Cross default ) or cross-termination ( cross termination ) Clause. This means that once a party defaults under a particular legal document or agreement, it shall be deemed to have simultaneously defaulted under any related linked agreements as well, thereby triggering the default remedies provided in those linked agreements. The mechanism of cross-termination clauses is identical to that of cross-default provisions. Maintaining consistency among relevant legal provisions: Between the main transaction document and any ancillary transaction documents, ensure consistency in key legal provisions. For example, unless absolutely necessary, the main transaction document and ancillary transaction documents should maintain consistency in matters such as applicable law and dispute resolution mechanisms, thereby avoiding conflicts or inconsistencies. Any inconsistency agreed upon in these critical areas could result in a party to the transaction being unable to obtain effective legal remedies when its rights are infringed upon.