Term Sheets
Standard clauses and main goals
Sala do Senado
*
May 7th 2014
*
Luís Roquette Geraldes
(MLGTS/Team Genesis)
CONTENTS
• 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
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 based
on the excellence of our legal services, the promptness of our response time, the
professionalism 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 head
office in Lisbon and additional offices in Porto and Funchal. As a result of our
network of associations and alliances with local firms and the creation of the
MLGTS 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 involved
in many of the largest and most important operations in Portugal, as well as in
high-value cross-border transactions and disputes. We also provide multilingual
representation to large companies around the world.
Why choose MLGTS
Our client list includes some of the largest Portuguese and international
companies and business groups, as well as public and private entities and
supranational 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 exclusive
Portuguese member of the world’s
leading network of independent law
firms with in-depth experience in
100+ countries worldwide.
As part of the Lex Mundi global
network, we can provide our clients
with preferred access to more than
21,000 lawyers around the world, all
from a single point of contact.
This is the only international network
that allows our firm to be present in
almost every country in the world with
a “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 is
a team of lawyers of Morais Leitão, Galvão Teles, Soares da Silva & Associados, created to instruct start-ups
and 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 the
existence 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 and
innovation, Team Genesis is a multidisciplinary team prepared to understand customer needs and generate
added value.
Sectors
Whatever the business’ development stage, Team Genesis offers solutions and quality answers in every
industry.
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
Tax Law
Telecommunications
and regulation
Coordinator for Oporto
Business development
Litigation
Labour and Social
Security Law
Coordinator
M&A, joint-ventures and
finance
Strategic general supervision
ee
E-commerce, cyber
law and data
protection
European Law and
public and private
incentive systems
Public Administrative
Law and Public
Procurement
Corporate Law
Coordinator
Intellectual Property Law
CONTENTS
• 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
Global perspective
• “Legal astuteness” – term used by Constance E. Bagley (“The
Entrepreneur’s Guide to Business Law”)
– “a managerial capability that enables top management team to work effectively with
counsel to solve complex problems and to protect and leverage firm resources. There
are four components: (1) a set of value-laden attitudes, (2) a proactive approach, (3) the
exercise of informed judgement, and (4) context-specific knowledge of the law and
legal tools.”
• The importance of a Term Sheet: the terms according to which the
venture capitalist is willing to investment, typically based on a post-money
valuation
• Practical effects: summarises the terms and conditions, simplifies the work
of consultants (legal, financial, insurance), mitigates problems and reduces
costs
• Legal effects: a contractually binding offer?
CONTENTS
• 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
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 risk
management tool for the venture capitalist, allowing the unveiling of
hidden liabilities and the insertion of the relevant R&Ws
• Reps & Warranties: statements and warranties regarding the target’s
business and shares which enable the parties to establish a basis for the
valuation and the relevant investment
• Goal: risk sharing tool that works both before and after the
investment; the breach of R&W may trigger penalty clauses and other
contractual remedies (price correction, share capital dilution, etc.)
• Examples: Legal, commercial or contractual R&Ws (ownership of
shares, assets and rights; financial accounts; daily activity, compliance
with legal obligations – labour, social security, tax)
CONTENTS
• 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
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
CONTENTS
• 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
Corporate governance
•
Goal: to ensure the perfect execution of the contract and the control of the investment
made; to allow the immutability of the basis according to which the decision to invest was
initially made
•
Shareholder’s agreements: investor’s representation on the board room, participation and
intervention in the company’s corporate bodies
•
Majorities, consent or vetoes in strategic decisions (reserved discretions) in both Board of
Directors 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 and
further reporting)
•
Deadlock provisions
CONTENTS
• 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
Alignment of interests
• 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 leaver
provisions
– Deadlock provisions
CONTENTS
• 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
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)
CONTENTS
• 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
Other relevant provisions
• 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
lrgeraldes@mlgts.pt
www.mlgts.pt/teamgenesis