MLGTSDOCS-#1348317-v1-Nova One Academy … Academy/Termsheets.pdf · Luís Roquette Geraldes ... hidden liabilities and the insertion of the relevant R&Ws ... Shareholders’ structure

Term Sheets

Standard clauses and main goals

Sala do Senado*

May 7th 2014*

Luís Roquette Geraldes(MLGTS/Team Genesis)

• MLGTS/TEAM GENESIS - OVERVIEW

• Global perspective

• Reps & warranties – the relationship between the due diligence

and the valuation

• Shareholders’ structure - crystallization

• Corporate governance

• Alignment of interests

• Breach prevention mechanisms

• Other relevant provisions

CONTENTS

Overview

Who are we

Independent and internationally recognised as a leading law firm in Portugal,Morais Leitão, Galvão Teles, Soares da Silva & Associados’s reputation is basedon the excellence of our legal services, the promptness of our response time, theprofessionalism of our team and the innovative solutions we provide.

Where are we

With a team comprising 160+ lawyers at a client’s disposal, we have our headoffice in Lisbon and additional offices in Porto and Funchal. As a result of ournetwork of associations and alliances with local firms and the creation of theMLGTS Legal Circle in 2010 we also operate through offices in Angola,

Macau and Mozambique.

Overview

What we do

We offer specialised services in the main areas of law, having been involvedin many of the largest and most important operations in Portugal, as well as inhigh-value cross-border transactions and disputes. We also provide multilingualrepresentation to large companies around the world.

Why choose MLGTS

Our client list includes some of the largest Portuguese and internationalcompanies and business groups, as well as public and private entities andsupranational institutions, which gives us deep knowledge of the national and

international business environment from a legal perspective.

Full service law firm

Practices

- Administrative and Public Procurement - Banking and Finance - Capital Markets - Corporate and Commercial - European Law and Competition- Intellectual Property- Labour and Social Security- Litigation and Arbitration- Real Estate - Tax- Urban Planning and Environment

Industries

- Banking and Financial Services- Defence and Internal Security- Electronic Communication- Energy- Food and Beverages- Health and Pharmaceuticals- Individual Clients- Information Technologies - Infrastructures- Insurance and Pension Funds- Life Sciences- Media and Advertising- Public Sector- Real Estate and Construction- Sports- Tourism and Leisure- Trade and Distribution- Transport

Member of Lex Mundi

Since 2001 MLGTS is the exclusivePortuguese member of the world’sleading network of independent lawfirms with in-depth experience in100+ countries worldwide.

As part of the Lex Mundi globalnetwork, we can provide our clientswith preferred access to more than21,000 lawyers around the world, allfrom a single point of contact.

This is the only international networkthat allows our firm to be present inalmost every country in the world witha “certificate of guaranteed quality”.

Alliance in Brazil

In 2006, MLGTS established an alliance with leading brazilian law firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados.

The firm has a lawyer permanently working at the São Paulo office (qualified to practice in Brazil) monitoring investments in Brazil and accompanying clients (for periods of 2/3 years).

MLGTS Legal Circle

To address the growing needs of our clients

throughout the world MLGTS has established solid

associations and alliances with leading law firms

in Angola, Macau and Mozambique.

International recognition

Team Genesis

Team

Dedicated to the provision of legal services in the area of entrepreneurship and innovation, Team Genesis isa team of lawyers of Morais Leitão, Galvão Teles, Soares da Silva & Associados, created to instruct start-upsand SMEs and advise business angels, venture capital and private equity.

Market

The know-how gathered in assisting various clients in this area and the current market needs justify theexistence of a devoted team, specially qualified to handle such matters.

Multidisciplinary

Composed of specialized lawyers in several areas of law with a particular calling for entrepreneurship andinnovation, Team Genesis is a multidisciplinary team prepared to understand customer needs and generateadded value.

Sectors

Whatever the business’ development stage, Team Genesis offers solutions and quality answers in everyindustry.

Team Genesis

Financing

The lawyers of Team Genesis are prepared to assist in the preparation and submission of applications for

financing, be it public or private, national or European.

Internationalisation

Organized to assist all cycles of the business, Team Genesis is in a privileged position to accompany the

internationalization strategies of its clients, through the partnerships and networks of MLGTS Legal Circle,

of Mattos Filho, Veiga Filho, Marrey Jr. and Quiroga Advogados and of Lex Mundi

Fees

Established under MLGTS corporate social responsibility policy and in compliance with the applicable

deontological rules, Team Genesis embraces fee policies which allow for legal costs to be determined from

day one as well as risk sharing with clients.

Team Genesis – Areas of Practice

ee

Tax Law

E-commerce, cyber

law and data

protection

European Law and

public and private

incentive systems

Public Administrative

Law and Public

Procurement

Telecommunications

and regulation

Litigation

Coordinator

M&A, joint-ventures and

finance

Corporate Law

Coordinator for Oporto

Business development

Labour and Social

Security Law

Strategic general supervision

Coordinator

Intellectual Property Law

• MLGTS/Team Genesis - overview

• GLOBAL PERSPECTIVE


and the valuation






CONTENTS

Global perspective

• “Legal astuteness” – term used by Constance E. Bagley (“TheEntrepreneur’s Guide to Business Law”)

– “a managerial capability that enables top management team to work effectively withcounsel to solve complex problems and to protect and leverage firm resources. Thereare four components: (1) a set of value-laden attitudes, (2) a proactive approach, (3) theexercise of informed judgement, and (4) context-specific knowledge of the law andlegal tools.”

• The importance of a Term Sheet: the terms according to which theventure capitalist is willing to investment, typically based on a post-moneyvaluation

• Practical effects: summarises the terms and conditions, simplifies the workof consultants (legal, financial, insurance), mitigates problems and reducescosts

• Legal effects: a contractually binding offer?



• REPS & WARRANTIES – THE RELATIONSHIP BETWEEN THE

DUE DILIGENCE AND THE VALUATION






CONTENTS

Reps & warranties – the relationship with the due diligence and the valuation

• Due diligence (financial, legal and tax related): “x-ray” of the Target

• Goal: given the asymmetry of the information, it works as a riskmanagement tool for the venture capitalist, allowing the unveiling ofhidden liabilities and the insertion of the relevant R&Ws

• Reps & Warranties: statements and warranties regarding the target’sbusiness and shares which enable the parties to establish a basis for thevaluation and the relevant investment

• Goal: risk sharing tool that works both before and after theinvestment; the breach of R&W may trigger penalty clauses and othercontractual remedies (price correction, share capital dilution, etc.)

• Examples: Legal, commercial or contractual R&Ws (ownership ofshares, assets and rights; financial accounts; daily activity, compliancewith legal obligations – labour, social security, tax)




and the valuation

• SHAREHOLDERS’ STRUCTURE - CRYSTALLIZATION





CONTENTS

Shareholders’ structure - crystallization

• Goals:

– To allow control over the shareholding structure during the investment period

– To have protection if further investors enter the share capital of the company

– To enable a full exit in order to maximize value

• Examples:

– Pre-emption or first refusal rights in capital increases and share transfers

– Lock-up periods

– Anti-dilution clauses (pay to play)/ most favoured nation clauses (ratchets)

– Tag-along and drag-along rights and call/put options




and the valuation


• CORPORATE GOVERNANCE




CONTENTS

Corporate governance

• Goal: to ensure the perfect execution of the contract and the control of the investmentmade; to allow the immutability of the basis according to which the decision to invest wasinitially made

• Shareholder’s agreements: investor’s representation on the board room, participation andintervention in the company’s corporate bodies

• Majorities, consent or vetoes in strategic decisions (reserved discretions) in both Board ofDirectors and Shareholders Meetings:

– business plan approval

– payment of dividends

– amendment of the company’s articles of association

– new financing and the issuance of guarantees

– other relevant decisions

• Reporting/monitoring requirements (remunerations committee, chartered accountant andfurther reporting)

• Deadlock provisions




and the valuation



• ALIGNMENT OF INTERESTS



CONTENTS

• Goal: to ensure that the team and their know-how and work is

assured throughout the investment period until exit

• Examples:

– Non-compete obligation

– Exclusivity obligation

– Vesting agreements (stock option plans) with good leaver/bad leaverprovisions

– Deadlock provisions

Alignment of interests




and the valuation




• BREACH PREVENTION MECHANISMS


CONTENTS

Breach prevention mechanisms

• (i) Unlimited and (ii) joint and several personal liability of the

founders in case of breach of contractual obligations

• Penalty clauses

• Reps & warranties and the consequences of their breach (penalty

clause, price correction and/or dilution)




and the valuation





• OTHER RELEVANT PROVISIONS

CONTENTS

• Conditions precedent

• Liquidation preferences and dividend or debt repayment priority

• Classes of shares – preferred shares and attached special rights

• Definitions of the terms of investment (milestones and business

plan)

• Confidentiality undertakings

• Costs and expenses

Other relevant provisions

[email protected]/teamgenesis

Documents

MLGTSDOCS-#1348317-v1-Nova One Academy … Academy/Termsheets.pdf · Luís Roquette Geraldes ... hidden liabilities and the insertion of the relevant R&Ws ... Shareholders’ structure