Management control investors generally do not want to be involved in any decision of the company, but probably a seat on the board of directors and a veto on a number of important operational matters. There will generally be a list of 20 to 30 “reserved deals” that the company`s board of directors will have to refer back to investors before the company can take the proposed action. Typical reserve topics are borrowing, major investments and hiring or firing executives. Investors will also likely require the company to adhere to a business plan and an agreed budget each year. In this regard, it is important that reserved issues restrict only important operational issues, so that management can make formal day-to-day decisions. The main areas of ACTIVITY of the OSG generally include representations and guarantees of the company and the founders with respect to the legal and financial status of the company and its actions, the right of the seller to carry out the transaction and other important facts (see also the disclosure plans below). There is also a section in which the buyer of the stock has insurance and guarantees to return to the seller, and a section in which buyers must meet conditions before they are forced to buy – this section often reads as a linen list of other transaction documents that must be present simultaneously. And the last part is usually a long “various” or “other business” section, which includes agreements on how the G.S.O. is interpreted and enforced, and documentation on agreements on other legal issues. Participation is exactly what it looks like.
This is when an investor exchanges his money for property shares in your business. Accrued yields can take the form of dividends accrued on stocks or an interest rate on convertible bonds. It is rare in Engel`s agreements that such interest would actually be payable in cash. In a typical share transaction, voting issues are left to the discretion of individual shareholders. The assumption is that it is relatively easy for a large investor to form a majority bloc in favour of a proposal that the large investor would like to see adopted. Or we use a voting treaty. But for some deals, nothing is left to chance and investors are asked to assign their voting rights to an investor delegate (this assignment is designated as the substitute of an agent) who will then be able to vote on the rights. In this way, one can ensure that the actions are chosen, the blocks are formed correctly and no one has to spend effort or delays to chase the votes for desirable results. These proxy assignments are usually permanent and irreversible (hence the irrevocable name) of voting rights transfers, so that if you see one in a deal package, read carefully and make sure you are comfortable that the voting agent`s interests fully coincide with yours. A term sheet or letter of intent is an explanation of the proposed terms and conditions for a proposed investment.
It usually has a length of about one to five pages. In case of angelic investment, the term sheet can be created by the startup or angels.