PRIVATE EQUITY DOC

NUANCES OF PRIVATE EQUITY:

Private equity:

Private equity (PE) refers to capital investment made into companies that are not publicly traded. A source
of investment capital, private equity (PE) comes from high-net-worth individuals (HNWI) and firms that
purchase stakes in private companies or acquire control of public companies with plans to take them private and
delist them from stock exchanges.

Sources of private equity:

High net worth investors (angel investors)

PE/VC firms

Venture capital:

Venture capital is capital invested into a business that is typically new or expanding. Example when big firms
like Sequoia or Google Capital invest in start-ups.

THE STAGES OF RAISING AN INVESTMENT: (M&A, PE, VC)

Expression of Interest

Term Sheet: Usually a nonbinding document that addresses important commercial and legal issues of a
transaction in bullet points.

It is possible for both parties to specify whether any points will be binding – (a term sheet may have an
exclusivity/confidentiality/break fee clause).

Or,

LOI (letter of intent) – Same as term Sheet. LoI is more often used in mergers whereas term sheets are generally
used in PE/VC transactions.

Difference between the styles: Drafted Letter and bullet points.

Function:

Sets out general intent of the parties

Outlines the key commercial and legal issues of a transaction

To allow for negotiations

To provide safety net in case the transaction ceases to come to fruition. (break fee clause).

Due Diligence:

This step is followed by an acquiring company to see whether all the representations provided by a Company
that is being acquired is true or not. It is done to eliminate any form of risk that an acquiring company may be
not aware of.

Any irregularities discovered are often added to the conditions precedent clause of a particular transaction.

Due diligence can be of different types; legal, financial, technological, labour, environmental, factory, tax etc.

Execution of Necessary Documents:

Shareholders Agreement
The shareholders agreement contains key terms of an investment. It is primarily done to safeguard the rights of
the necessary stake holders. Details contained include;

Terms of investment (management of company, effective date, pre emptive rights for issuance of new securities,

Rights of the shares issued to the investor (e.g right to first refusal, right to first refusal).

Representations

Warranties

Indemnities

Exit Options

Governance Provisions

Share purchase Agreement

It is an agreement executed between the shareholders and investor to document the sale of existing shares by
the shareholders to the investor. Normally indemnities and warranties are provided in this agreement to gain
confidence of the investor.

Share subscription Agreement

It is a document that is executed that contains the obligation of the investor to subscribe to the shares of a
company if certain conditions are fulfilled by the same. It is not very stringent, companies may opt of back out.

KEY TERMS THAT NEED TO BE KNOWN THAT FEATURE IN A SHAREHOLDERS

AGREEMENT:

ESOP

Drag Sale

Drag Sale Purchaser

Dragged Shareholders

Equity Shares

Preference Shares

Hybrid Securities

Exit Notice

Exit Period

Fully Diluted Basis

IPO

Issuance notice

Issuance Price

Issuance Shares

Liquidity Event

Materially Adverse Effect

Memorandum of Association

Articles of Association
Pre-emptive Right

Put Notice

Put Securities

ROFR

Warranty

Share Capital

Effective date

Affirmative voting matters

General meeting

Lock in

Tag along right of investor

Drag along right of investor

Founder vesting

Good leaver situation

Bad leaver situation

Right of inspection

Information rights

DIFFERENT KIND OF TRANSFER AGREEMENTS:

Asset Purchase Agreement

Share Transfer Agreement

Slump Sale

Mergers & Amalgamations

o Why do M&A transactions take place? What are the usual commercial motives behind
them?
o How are M&A transactions structured?
 Slump sale
 Asset Purchase Agreement
 Business Transfer Agreements
 Leveraged Buyouts
 Hostile Takeover
 Acquihire Agreements
 JV Agreements
o Private Investment in Public Equity (PIPE) transactions

o Term loan agreements

o Credit facilities
o Important clauses:
