张 陈 会 计 师 事 务 所 PRIVATE & CONFIDENTIAL 中华人民共和国
北京 100020 朝阳区 光华路1号
北京嘉里中心18层 Mr. Marc A. van Weede Telephone +86 (10) 6561 2233 Senior Vice President Facsimile +86 (10) 8529 9000
Group Business Development
2591 TV The Hague
June 7, 2001
Dear Mr. Marc A. van Weede
Proposed China insurance joint venture partner search
Thank you for appointing PricewaterhouseCoopers to assist you with your financial and market due diligence investigation in connection with your search for a joint venture partner in China. This Engagement Letter and its appendices set out the Services that we have agreed to provide and the terms of our engagement.
1. The Services to be provided
1.1 Phase One: Partner assessment report
1.1.1 We will conduct a quick review of Aegon’s short-list companies to see if the list includes
the right companies. We will also review the processes and criteria used by
Aegon during its preliminary selection of the candidate companies and provide our comments on the suitability according to our understanding of the China market environment. This review will be based on a limited desktop
research and discussions between PwC and Aegon.
1.1.2 We will prepare a written report and presentation on the business and financial affairs of 4-5 partner targets selected from Aegon’s shortlist of companies including ranking of the
companies based on Aegon accepted criteria and PwC due diligence. The areas our work will cover and the main procedures we will carry out are set out in Appendix A to this letter.
1.1.3 We understand that Aegon will make every effort to secure full access for PwC to each partner target’s senior management, its financial records and its operations at the 商品引进管理规定售后服务系统企业运营报告分行业综合评分城市带发展的研究报告国有企业基本状况企业综合实力行业研究报告管
concerned location. We may visit each target’s operations at the concerned location or
locations or using only the information supplied by the target depending on the actual circumstances and due diligence needs.
1.1.2 We will provide the management of the targets with an opportunity to reconsider the factual accuracy and appropriateness of information and explanations that have been provided to or found by us and give their comments on issues of major significance.
1.1.3 If you provide any draft joint venture agreements to us expressly for our comment, we will comment in the light of the knowledge we have gained from the due diligence services on matters which in our view may be significant to your discussions with your legal advisers relating to the substance of any accounting provisions or accounting warranties.
1.1.4 In connection with our tax advice on setting up the joint venture, we will also, if requested, review drafts of the joint venture agreement / shareholder agreement and comment on the same basis as described at 1.1.4 above on significant tax matters that come to our attention. However, we would do so as tax advisers and not as lawyers or legal draftsmen and responsibility for ensuring that the tax structure you intend to adopt is properly reflected in the agreement remains with you and your legal advisers.
1.2 Phase Two:
Upon receiving our final partner assessment report, PwC will be in the position to further assist Aegon in the following areas:
1. Conducting business negotiation with the respective Chinese partners; 2. Providing insurance regulatory and joint venture investment law assistance; 3. Offering suggestions to the Aegon negotiation team on best practices in setting up the joint venture vehicle;
4. Assisting in negotiation of relevant commercial terms in the joint venture contract and in the articles of association;
5. Attending meetings with relevant CIRC officials to further explain the background of the target joint venture partner;
We will be able to commence the project preparation work on June 9, 2001 collecting and exchanging information with Aegon team in Beijing. We expect to start the due diligence works around June 20 and complete our report in approximately 52 or 60 working days from the date of signing this engagement letter depending on the total number of target companies.
We anticipate being able to issue a draft report and making a preliminary presentation on thth or 55 working day from the date of this engagement letter being signed the 48
depending on the total number of target companies.
Commencement of the second phase will depend on the time we complete the final partner assessment report and when Aegon plans to start its negotiations with the final candidate or candidates. Under the circumstances, the second phase involvement and time required of the PwC professionals are subject to further discussion between PwC and Aegon at a later time.
3. The team
3.1 We currently envisage that our team will be led by Johnny Chen, who will be the Engagement Partner responsible for the Services we are to provide to you. Alex Wong, Director, will be the lead insurance industry advisor. Mr. Ying Xiao, Senior Manager of Market Due Diligence, will be responsible for the market due diligence services; Chris Boddington and Teddy Tang, Senior Managers of Financial Due Diligence will be in charge of the financial due diligence. Other support staff of PwC will also be assigned to assist in the engagement.
Our fees are based upon the degree of responsibility, staff involved, skills required, the time necessarily occupied on the assignment and our standard charge rates. As we have agreed upon, our total professional fee for Phase One will be fixed at US$ 110,000.
For Phase Two, our fees will be charged on an actual time basis. The total estimated fee is
US$ 63,000 as follows:
Staff Hours Rate Fee US$
Partner 60 630 37,800
Director 100 525 52,500
TOTAL 160 90,300
At 30% discount 63,210
Please bear in mind that the involvement of PwC professionals for the most part depends on the Aegon’s negotiation team as to the nature and extent of our participation. The above time commitment shall be subject to further confirmation between PwC and Aegon.
We will provide Aegon with a quote and ask for a written approval before starting any
work if the professional fees are in excess of the above quoted fee estimates.
We will immediately halt research on a JV candidate when it becomes clear to us that the
concerned candidate does not meet the key Aegon selection criteria. In this case, we will
only charge Aegon based on the actual hours spent on this candidate.
Out-of-pocket expenses will include mainly transportation, accommodation,
telecommunications, postage, copying and printing expenses which will be charged on an
actual basis. Our fees do not include business tax which will also be charged to you on
total billings (including business tax) at a rate of 5.263%, together with the expenses
referred to above.
4.2 For both Phase One and Two, our fees and expenses will be invoiced on a monthly basis
for the actual time and out of pocket expenses incurred.
5. Terms of Business
5.1.1 This letter should be read in conjunction with the enclosed Appendix B: Terms of Business.
5.1.2 All PwC staff who provide services on the Aegon engagement will not engage a similar
insurance JV partner search in China from the date of the signing of this engagement letter
until Aegon has signed a Letter of Intent with a partner candidate on the establishment of
the JV or until Aegon has released PwC from its obligation. Such release shall be
automatic three months after completion of this engagement for Aegon.
5.1.3 The information provided by Aegon and reports issued during this exercise will be kept
confidential to Aegon only, without time limitation, except that PwC may use or refer to
information that are otherwise publicly available in other occasions.
6. Acknowledgement and acceptance
6.1 This Engagement Letter and its appendices together form the Contract between us.
6.2 Please record your agreement to the terms of this Contract by signing the enclosed copy of
this letter in the space provided and returning it to us.
Confirmation of the Contract
I have read the Contract terms set out in the Engagement Letter dated June 6, 2001 and its
appendices provided with that letter. I accept those Contract terms on behalf of Aegon and
represent that I am authorised by Aegon to do so.
Name and position: ……………………………….
On behalf of Aegon
Part I – Matters to be covered
The objective of our due diligence review is to assist Aegon in its assessment of the financial and market strength of the Targets and their suitability as a partner with Ageon to establish a new joint venture for insurance business, which is not the existing business of the Targets. The depth of our due diligence review will be therefore less than that required for an investment in the existing business of the Targets.
1. Financial due diligence
Our work will cover the matters set out below, but our report will not necessarily include comments on all of those matters because, in the interests of clearer reporting, we will not report on matters that we do not believe to be significant. We will focus on:
; Ownership and corporate structure analysis with information of major shareholders,
ownership structure, group organisation structure, management control, business and
other relationship with shareholders and other group members;
; Current financial position analysis including review of cash flow position, quality of
assets, sources of funding and investment in distribution and other related assets,
arrangements and results of invested joint ventures, if any;
; Historical trading performance review including analysis of revenue and margin in the
past three years, review of quality of earnings, trend analysis, IAS/USGAAP
; Prospects discussion covering 2001 budget, results of the period to date, management
view of prospects in the next five years, in particular, management considerations of
local contributions to the proposed joint venture and expectations from Aegon and the
; Management and employees analysis with information on key management team and
their track records, management incentives, salary and welfare policy and terms of
2. Market due diligence
Our work will cover the aspects set out below, we will not report on matters that we do not believe to be significant. We will focus on:
; The target company’s reputation / current and future market position based on the
industry’s experts and key customers’ views
; Short-term and long-term business and marketing strategies/ plans, current marketing
focus, willingness to market insurance products/ services, market performance, current
services and future development plans, plans to expand outward-both in terms of
geography and business lines
; Current distribution channels and characteristics, key distributors’ views on the target
distribution networks’ strengths and weaknesses, geographical coverage of the
distribution channels, future development plans
; Customer demographics / features, geographical distribution, etc
Strength and weakness analysis or SWOT
Based on all due diligence findings and available information, we will provide an analysis on the target company’s strengths and weaknesses in terms of its appropriateness to be a
JV partner. Key areas of our analysis will include
• Company reputation
• Management team
• Interest in the insurance industry
• Financial strength
• Key customer base
• Distribution capabilities/ geographic coverage
• Trading performance
• Business development model / prospect
• Competitive advantages/ disadvantages in the industry
• Experience of working with foreign companies
• Relationships with government authorities
(The issues are not listed in the exact order of importance)
Identify any potential problem areas associated with the target local JV partner given the unique market dynamics in China.
Consultant’s input in structuring JV agreement and the company
Based on our experience and knowledge of legal and regulatory environment in China, as well as relationship with local insurance companies, we will make some strategic input to ensure that the JV agreement:
• be in compliance with relevant regulatory rules
• meet legal requirements
• meet tax requirements
• consistent with the ways of doing business in China
• take into consideration Chinese partner’s needs
Part II – Procedures to be carried out
We will carry out our due diligence procedures consisting mainly of discussions with management and examination of available evidence. We will look for issues important to you by reviewing the relevant areas to cover the matters set out above in Part I .
1. Financial due diligence
Historical financial information
; Obtain from the management of each Target its financial statements for the past three
years and, through discussion with management of the components of the financial
statements, endeavour to quantify the adjustments, if any, necessary for these to more
closely reflect the Target’s results and financial position as would be reported under
; Obtain from the management of each Target explanations of the trends shown by
analyses of key figures in the historical financial statements;
; Seek to identify important and deal affecting issues through discussions with
; Obtain from the management of each Target its budget for 2001, results to date and
plans for the next five years;
; Obtain from the management of each Target explanations of any variance from 2001
budget, the key assumptions for plans for the next five years and the major
considerations of the proposed joint venture with Aegon;
; Seek to identify important and deal affecting issues through discussions with
2. Market due diligence
; Define and set up the market due diligence criteria and key issues
; Prepare a questionnaire for the in-depth interviews with target companies and other
concerned parties, a list of required information for financial reviews and analyses;
; Conduct due diligence interviews / research, investigation and visit the target
; Analyze primary & secondary due diligence findings
; Prepare a due diligence report on the target companies
; Present the due diligence findings to AEGON
; Explain how we made the assessment and implications
APPENDIX B: Terms of Business for Due Diligence Introduction PricewaterhouseCoopers ("we") are pleased to set out the Terms of Business which will apply to the work we do for you. These Terms of Business and the Engagement Letter together form the Contract between us. The definitions used in these Terms of Business are set out in clause 11 below. PricewaterhouseCoopers (普华永道中天会计师事务所有限公司) is a registered CPA firm in the People’s Republic of China whose registered office is at 325 Shen Jia Lane, Pu Dong, Shanghai 200137, People's Republic of China. 1 The Services 1.1 We will provide the services described in the Engagement Letter ("the Services"). 1.2 The Services will be provided to assist you in your due diligence. The Services will cover the areas agreed with you in the Engagement Letter, but even in those areas there is no guarantee that all matters of significance to you will be disclosed by our work. Our work will be based on information supplied to or obtained by us and will be carried out on the basis that such information is accurate and, where it is represented by management of the Target as such, complete. The Services will not include an audit conducted in accordance with generally accepted auditing standards. We will not subject information to checking or verification procedures, except to the extent expressly stated to form part of the Services. It is your responsibility to determine whether the areas we are to cover and the extent of checking or verification included in the Services are adequate for your purposes and we make no representations in this regard. 1.3 The Services do not include the provision of legal advice or legal due diligence services and, except as provided in this clause 1.3, we make no representations concerning questions of legal interpretation. 1.3a: To the extent that any due diligence work on tax or tax advisory work involves the interpretation of tax law, we will report or advise on the basis of our understanding of the proper interpretation of tax legislation, court decisions, regulations and interpretations of the law in existence on the date stated in our report or written advice (or, if no such date is stated, the date on which our report or advice is signed) ("the Effective Date"). Changes in the law and/or its interpretation may take place before our advice is acted upon, or may be retrospective in effect; we accept no responsibility for changes in the law or its interpretation which may occur after the Effective Date. 1.4 Where the Services expressly include consideration of prospective financial information, we will comment on the bases and assumptions adopted by the management of the Target, but our work will not constitute an Examination, Compilation or Review and we will not express any Opinion or provide any Assurance. Because events and circumstances frequently do not occur as expected, there will usually be differences between predicted and actual results, and those differences may be material. We will take no responsibility for the achievement of results predicted by the management of the Target. 2 Reports 2.1 In the course of providing the Services we may provide oral comments, or written reports, letters, schedules or hard or soft copies of computer models in draft form. As these represent work in progress and not our definitive findings, we do not assume a duty of care to you (or anyone else) in respect of them. The final results of our work and our definitive findings will be contained in our final reports. 2.2 You agree to treat all oral comments and draft or final documents (whether in hard copy or electronic form) provided to you in connection with the Services (together "our Reports") as confidential and, except to the extent permitted by clause 2.3, you will not make the benefit of the Services available to any third party. 2.3 Copies of our Reports may be made available to: your directors and officers; those employees involved in the management of the Transaction, and your legal advisers provided that in each case you take reasonable steps to ensure that they understand that: (i) our Reports are confidential (ii) they may use our Reports only for the purposes of the Transaction (iii) we accept no duty of care to them in respect of any use they may make of our Reports. 3 Confidentiality and relationships with other clients 3.1 Confidentiality 3.1.1 We will treat Confidential Information as confidential. 3.1.2 We may disclose Confidential Information (a) to other PricewaterhouseCoopers Firms and to our insurers or legal advisors, and (b) if required to do so by law or professional regulation. 3.1.3 Subject to 3.1.1 above, and once the Transaction is no longer confidential, we may cite the performance of the Services to our clients and prospective clients as an indication of our experience. 3.2 Relationships with other clients 3.2.1 We may be in a position where we are providing services to other clients who may be in competition with you or whose interests may conflict with your own. We will not be prevented or restricted by virtue of our relationship with you under this Contract, from providing services to other clients, but we will not use Confidential Information for the advantage of such clients. Similarly we will not use to your advantage information received in confidence in connection with another engagement. 4 Electronic communications [Optional] 4.1 During the engagement we may wish to communicate electronically with each other. However, the electronic transmission of information cannot be guaranteed to be secure or virus or error free and consequently such information could be intercepted,