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Ace - SHA - Comments of Promoters (261115)
Ace - SHA - Comments of Promoters (261115)
Ace - SHA - Comments of Promoters (261115)
1. Milestones (Page 1- Point C) As we Discussed we can put As discussed, the Promoters will
Milestone based on -- provide the milestone figures.
3. Special Rights We can propose a threshold for The special rights should kick-in
these rights, say 4% of shareholding once the entire investment has been
made in the company by the
However, the rights should kick-in Investor.(Third closing)
Special rights under the Shareholders from the Second closing.
Agreement to kick in only when the
entire investment has been made by the
investor. Also the special rights given to Further, the threshold for falling
the investor will cease if it is diluted away of these rights could be when
below a particular level. Special rights the Investor ceases to hold at least
include share transfer restrictions, 10% of the shareholding.
affirmative voting items, board seat
(while an observer can be appointed), Negotiation Limit: 10%
non-compete, assured exit and pre-
emptive right.
4. Material Adverse Effect This is a subjective requirement. We suggest a figure of 20%
However, we can still provide a
Clause 1.1 (v), (zz) threshold, say 10% erosion of Negotiable Limit above the
valuation/revenues from last proposed 10% is fine.
The definition of this provision refers to audited financial statement.
a financial material adverse effect on
the business or operations or assets etc.
of the Company, which would
ultimately result in an event of default
whereby the investor can seek an exit.
We would like to discuss this and add a
financial threshold to the same.
6. Rights in subsidiary company The definition of Subsidiary The definition of Subsidiary under
already takes care which is As the Companies Act, 2013, is very wide
Clause 1.2 (xv) per the Companies Act 2013. and would include in its scope any
entity in which the company would
The Shareholders Agreement refers to hold 51% or more of the paid-up
all the rights available to the investor in share capital. We understand that the
the current venture being made Investor proposes to have special
available to the investor in any rights in all such companies as well,
subsidiary company as well, or most however, this may not be feasible,
nearly affected in the subsidiary keeping in view that the subsidiaries
company. We would like to change this may attract investments from other
point to the extent that if the current investors, who may hold a significant
venture funds the new company to the stake in the subsidiary.
extent of certain percentage of
shareholding in the new subsidiary, In view of the above, we suggest that
then only such rights be made available the Investor may get special rights in
to the investor in the subsidiary. only such subsidiaries in which the
company holds say 90% of the paid-
up share capital.
7. Board of Directors and Observer We are fine with -- There should be odd number of
directors on the board to prevent a
1 Director by the Investor and 3 by deadlock. We suggest 1 director by
promoters. Investor and 4 by the promoters.
It may be advisable to have odd
number of directors on the board to One Observer from Investor will be We do not want any observer on the
avoid deadlocks. Hence, it is imperative there. board by the Investor Since the
to appoint one more director on the Promoters have agreed to 1 Director,
board which will be on the basis of pro there is no requirement of an
rata shareholding. Since the proportion Observer (Negotiable)
of shareholding as on the date of full
investment will be 4:1, the director
appointment should also be in the same
ratio. Also, right of the investor to
appoint directors on the board will
cease if the shareholding of the investor
falls below a particular threshold.
8. ROFR Clause 6.2 There can not be any transfer Mutual lock-in of 2 years is
restriction on the shares held by the acceptable.
RORF has been inserted in the Investors.
agreement keeping in mind the The ROFR should be available to the
investors interest. Given the skewed 2 years lock-in. Not to apply in case promoters in case of any proposed
shareholding pattern, we would like to of default. transfer of shareholding by the
make this a mutual right available to Investor. This is because the
the investor and the promoters. ROFR No transfer restriction on Investors promoters would in any case be the
can be exercised only post expiry of majority shareholders in the company
certain lock-in period which will be and if the promoters are willing to
applicable to both the parties. purchase the shares of the Investor at
the same price which the Investor is
getting from a third-party purchaser,
then, the Investors rights would not
be prejudiced.
9. Tag Along Right Clause 6.3 Same as above. The promoters should also have a
proportionate tag along right when
Tag Along Right has been inserted in the Investor is selling its shares to a
the agreement keeping in mind the third party.
Investor's interest. We would like to
make this a mutual right available to
the investor and the promoters.
The drag can only be exercised Drag along right is not acceptable,
upon expiry of the Exit Period - 5 given that the promoters would be
10. Drag Along Rights years if the Company fails to holding 80% of the shareholding of
provide an exit to the Investor. the company.
Therefore, this should be retained. In any case, buy-back and 3rd party
This right needs to be deleted from the sale are given as an option to the
agreement given the skewed -Buy back is given as an option Investor.
shareholding pattern.
-3rd Party option Non Negotiable.
13. Pledge of Equity & Issuance of Fine with promoters with prior Promoters should not require prior
Guarantee written consent. written consent of the Investor to
pledge their shares for raising finance
However, Investor cannot agree to for the business of the company. The
such obligation. same could be built into the
The promoters should be allowed to document in the first instance itself.
pledge their equity to raise finance for (Non negotiable)
the business. Also, we need to discuss
whether the investor will be required to We are fine with Investor not
pledge its share of equity or issue pledging its shares for the purpose.
guarantee if so required by the bank or
FI.
14. Deadlock Resolution The idea is to address a situation
where the business of the company is
The proposed mechanism can not stalled because of a deadlock on the
work in case of AVM matters. In reserved matters.
In the event of a deadlock between the such position Investors consent is
parties on any affirmative voting items mandatory. A mechanism should be agreed in the
on repeated basis, the promoters shall document itself to deal with such a
give exit to the investors on FMV. situation. We are open to Investors
suggestions as to the mechanism for
the same, in case our proposed
mechanism is not acceptable to the
Investor.
15. Dispute Resolution Fine with India Ok
Clause 24.2
Clause 25.6