Foreword

Recently, Yang Chunbao's team of lawyers received an arbitration award from the Beijing Arbitration Commission, and the team won an overall victory in a dispute over equity repurchase between an investment institution and a minority shareholder of a well-known educational institution. The focus of the dispute in this case is: how to accurately restore the true intentions of the parties when there are inconsistencies in the terms of multiple rounds of investment agreements. In the process of routine review of the case, the team extended in-depth thinking on the "complete agreement terms". The "Entire Agreement Clause" (ie "Entire Agreement Clause") is an "exotic product". It was mostly used in international sales contracts in the early days, and is almost a necessary clause. It usually appears in the final transaction document, which stipulates that the final transaction document is the contract between the parties. The entire written contract between the parties regarding the proposed transaction supersedes any prior oral or written agreement between the parties. Since then, it has been widely used in M&A transactions and private equity investment transactions. Over the years, Yang Chunbao's lawyer team has drafted or reviewed various versions of the "Complete Agreement Clauses" in the process of providing legal services to both parties to mergers and acquisitions or private equity investment transactions. The "Complete Terms of Agreement" will be discussed in order to provide a useful reference for professionals in the private equity investment field.

Different Types of "Entire Agreement Terms"

According to the "complete agreement terms" under the investment agreement involved in the private equity investment project handled by the team before, there are two typical expressions as follows:

(1) "Complete terms of agreement" only involving this round of financing

1. Basic expression

This Agreement constitutes the entire agreement reached by the parties with respect to this transaction, and supersedes any prior oral or written consultations, intentions, and agreements between the parties regarding this transaction.

2. Features

This is the basic version of the "Complete Agreement Terms", which is relatively simple and has the following two characteristics:

(1) It is limited to various forms of oral or written communication between the parties to this round of financing transactions, and does not involve any oral or written communication or documents formed in the previous round of financing transactions;

(2) It is a “one-size-fits-all” replacement and coverage of prior consultations (as defined below). That is, any oral or written term sheet or letter of intent, memorandum, and any other form of documents reached by the parties to this round of financing transactions at any stage prior to the signing of the definitive transaction agreement (hereinafter referred to as "prior negotiation") All of them will be replaced without exception immediately after the final transaction document takes effect. The rights and obligations of the parties to the transaction are only subject to the agreement of the final transaction document. In the event of any disputes between the transaction parties, the application of any prior agreement shall be excluded. consultation.

3. Applicable objects

From the characteristics of the basic version of the "complete agreement clause", it can be seen that this clause is only applicable to the oral or written communication between the parties to the transaction during the negotiation process of the same round of equity financing, and does not involve other rounds of financing. According to our practical experience, when companies that have experienced multiple rounds of equity financing, when drafting subsequent rounds of financing agreements, their "complete agreement terms" usually involve relevant investor rights clauses or founding shareholders' obligations clauses under the previous round of financing agreements. To stay or to adjust the problem. Therefore, we understand that this basic provision is more applicable to start-up companies that have not conducted any equity financing before.

4. Drafting recommendations

Since the basic version of the terms is only aimed at the communication content formed by the same round of equity financing, the possibility of conflict or ambiguity is relatively small. However, we recommend that the parties to the transaction fully review the previous procedural documents (including but not limited to the "Confidentiality Agreement" signed at the beginning of the negotiation, as well as the representations, warranties and commitments of the parties, etc.) when drafting this version of the "Complete Agreement Terms". In order to ensure that the content of the final version of the investment agreement fully represents the true intentions of all parties regarding this round of equity financing transactions, we must not directly engage in "one size fits all" and exclude content that is more in line with the opinions of all parties. For example, if the content of the previously signed "Confidentiality Agreement" is more thorough and detailed than the final version of the investment agreement, the confidentiality matters should be excluded from the "Complete Agreement Terms", which can be expressed as "the parties concerned about this The confidentiality obligation of the transaction shall be subject to the "Confidentiality Agreement" previously signed by the parties", or the "Confidentiality Agreement" may be included as an attachment to the final investment agreement. As for the representations, warranties and commitments made by all parties before, if there is not much content, they can be directly written into the text of the final version of the investment agreement. subject to numerous representations, warranties and commitments), and without modification, may be attached to the final version of the Investment Agreement.

(2) "Complete terms of the agreement" involving the previous round of financing agreement

1. Basic expression

The previous round of transaction documents, this agreement and other transaction agreements to be signed under this agreement, the final agreement and its related appendices and schedules constitute the entire understanding and agreement between the parties with respect to the subject matter of this agreement, and supersede all previous matters concerning this agreement. A written or oral understanding or agreement on the subject matter. The previous round of transaction documents will continue to be valid. Regarding the relevant rights and interests of investors under the previous round of transaction documents, if the final agreement is not explicitly deleted or amended, such rights and interests will continue to be effective; however, for the same matter, the previous round of transaction documents and the final In case of any ambiguity, conflict or inconsistency in the agreement, the final agreement shall prevail. The parties further clarified that Institution C does not object to the principles determined in this article in accordance with the relevant provisions of the MFN treatment under the Target Company's "Series A Investment Agreement".

2. Features

This is a relatively complete "complete agreement clause" involving multiple rounds of financing. It has the following characteristics:

(1) The previous round of transaction documents will continue to be valid;

(2) The investor's rights and interests clauses in the previous round of transaction documents shall continue to be valid (except for the rights and interests expressly waived by the previous round of investors in the final agreement);

(3) Regarding the agreement on the same matter, if there is any inconsistency or conflict between the previous round of transaction documents and the final agreement, the final agreement shall prevail.

3. Applicable objects

As we all know, an excellent enterprise is often the target of many capitals. In the process of its development and growth, it often goes through several rounds of equity financing. In the process of each round of financing, different investors must have different interest demands. Therefore, , and these investors often play games on the terms of the same or different rounds of financing deals of the target company. The result of the game is that a more detailed "complete agreement clause" will be set up in the later round of financing transaction documents, stipulating the "remaining" issue of investors' rights and interests or the obligations of the founding shareholders under the first-round financing agreement. That is to say, this improved version of the "Complete Terms of Agreement" applies to companies that have undergone multiple rounds of equity financing, and each round of financing involves the introduction of new investors.

4. Drafting recommendations

As mentioned earlier, the perfect version of the "Complete Agreement Clause" is the result of a game among shareholders of a company that has experienced multiple rounds of equity financing. Therefore, when drafting this clause, the most critical point is to make this result as unambiguous as possible. Reflected in the final version of the investment agreement. There are two meanings here:

(1) The game results of the parties to the transaction are reflected in the final version of the investment agreement. This point is relatively easy to understand. You can refer to the basic expression and characteristics of the improved version of the "Complete Agreement Clause" introduced above, and draft targeted content based on the actual interests of the parties to the transaction.

(2) The game results reflected in the final version of the investment agreement should avoid ambiguity as much as possible. In commercial practice, it is not easy to do this. Take the "complete agreement clause" involved in the arbitration case represented by Yang Chunbao's lawyer team mentioned in the preface of this article as an example. Disputes arose because of differences in the understanding of the "complete agreement terms" stipulated in the investment agreement. The basic case is as follows. The investor of the A round of the target enterprise of the arbitration applicant C institution signed the "A round investment agreement" containing the gambling clause with the natural person of the arbitration respondent B (that is, the client of Yang's lawyer team). After that, the target company failed to complete the betting target as agreed, but agency C did not require natural person B to perform the repurchase obligation, but signed the "B round investment agreement" with the new investor for the target company, and in the "B round investment agreement" In the Agreement, the target company's gambling indicators and gambling obligors are completely different from those in the "Series A Investment Agreement" (the natural person B is not the gambling obligor under the "Series B Investment Agreement"). In the end, when the target company failed to complete the betting indicators under the "B round investment agreement", C agency applied for arbitration, requiring B natural person to perform the repurchase obligation in accordance with the "A round investment agreement". This case is a typical dispute over how to interpret the "complete agreement terms". Although the final version of the investment agreement has new arrangements for VAM (including but not limited to equity repurchase), its complete agreement terms did not specify the previous round. Whether the VAM arrangement in the transaction documents continues to be valid has led to a different view between Institution C and Natural Person B on whether Natural Person B should still undertake the VAM obligation, which in turn led to disputes. Although we, on behalf of natural person B, finally won the case in an all-round way, after all, "fixing the sheep" is not the best policy. At the same time, it is clear that the content of equity repurchase should be subject to the final agreement), can’t it avoid litigation?

Epilogue

In a commercial contract, the "complete agreement clause" is usually placed at the end of the contract together with the dispute resolution, contract entry into force and other clauses, and is collectively referred to as the "general clause", which shows that the parties to the contract do not pay as much attention to this clause as they do to the contract price, The importance of "core clauses" such as payment method and liability for breach of contract. However, from the arbitration case mentioned in this article, it can be seen that the "complete agreement clause" plays a pivotal role in the private equity investment transaction documents, and an incomplete or possibly ambiguous clause poses an obvious risk to the parties to the transaction. Although, in the arbitration case represented by Yang's lawyer team, on the basis of carefully studying and comparing multiple investment agreements, and without any legal provisions to refer to or citing, the Yang lawyer team explained in detail to the arbitral tribunal the reasons behind each round of investment agreements. The investment logic and the logical relationship between the various rounds of investment agreements finally successfully persuaded the arbitral tribunal to reject the arbitration request of Institution C requiring B natural person to undertake the obligation of equity repurchase, but the arbitration/litigation results of such cases are more dependent on attorneys. and the subjective judgment of the arbitral tribunal/court, if the case is changed to a lawyer or another arbitrator, there may be a completely opposite arbitration result. Therefore, it is strongly recommended that all parties to a private equity investment transaction can formulate the most complete "complete agreement terms" under the guidance of professional lawyers. If there are relevant terms, they should promptly review and revise (if necessary) to avoid related disputes in the future.