EVERYTHING MATTERS

EVERYTHING MATTERS

Introduction toPrivate Equity and

Venture Capital

Content

Definition of Private Equity

Fund Structure

MBO Structure

Process of typical Private Equity transaction

Issues of parties concerned

Legal Documentation

Key provisions in Shareholder Agreements

Definition

Private Equity provides equity capital to enterprises not quoted on a stock market. Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company‘s balance sheet. It can also resolve ownership and management issues. A succession in family-owned companies, or the buyout and buy-in of a business by experienced managers may be achieved using private equity funding.

Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business.

InstitutionalInvestors

Private-Equity-Fund

Private Equity Fund Structure

Management-Company

Monies

ServicesIndividualInvestors

Trusts,Foundations, etc.

Portfolio company A

Portfolio company C

Portfolio company B

Share by managers

Fund Structure

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Fund Structures

Limited partners: individual and institutional investors and pension funds contributing to the fund‘s capital and committing to provide capital and loans to the fund once suitable investment opportunities have been identified by the general partner, receiving, in return, a hurdle rate on their funds and sharing profits in excess of this return with carry holders

General partner: commonly a limited liability entity formed by the fund‘s executives and / or sponsors, who is ultimately responsible for the fund‘s management and carries out the day-to-day management of the funds, receiving, as remuneration, a management fee from the fund.

Executives and sponsors (carry holders): generally these are partners to or executives of the private equity firm acting as general partner and also employees or directors of the general partner or associated company (ie the fund management company). These executives commonly contribute capital to the fund either directly or through a carry vehicle and usually participate in carried interest.

Managers and advisers: most funds ( or their general partners) retain a manager or investment adviser (or both) to manage the fund‘s investments and / or to advise the fund in its investment strategy (ie evaluating investment and exit opportunities).

Typical Fund Structures Austria

Mittelstandsfinanzierungsgesellschaft (§ 6b KÖStG) The dominant PE fund form was the so called “

Mittelstandsfinanzierungsgesellschaft” (MFAG). MFAG is a benefit from an exemption from a corporate tax an on income realized from portfolio investments in medium and small sized companies.

MFAG tax regime did not meet international standard banks need to be founders, 30 % of investments need to be commercial (gewerbliche Businesses), investments in Austrian, small or medium sized companies, 75 % of investments in Austrian companies.

MFAG found to be non-compliant with EU-law. A new MFAG proposal has been enacted, which is still very

cumbersome but no longer requires 75% of investments occur in Austrian small and medium sized companies.

Introduction of a new private equity law (IGG-Investment-gesellschaftengesetz) is currently being discussed. The proposal, supported by the Austrian Venture Capital Organisation AVCO, is to replace the current tax regime with an improved fund structure in the form of a tax transparent partnership which also benefits from an exemption from corporation and income realized by portfolio companies.

Procedure of typical Private Equity Venture Capital financings

Investment story

Preparation of the business plan

Company evaluation → 8 months

Presentations of the management

Term Sheet

Due Diligence → 4 months

Shareholder Agreement

Closing

Main Drivers of the parties concerned

Founders/Management:

Loss of Management Control Dilution of investments Adequate and sufficient financing of the company Future financing requirements of the company Indirect advantages due to involvement of private equity, such

as access to key contact persons of the industry concerned; assistance for further financing rounds and exit

Private Equity-Investors:

Current and future company evaluation Investment risks Purpose of the investment fund and investment criteria Projected return on investment Liquidity of the investment Securities in case of an unfavorable development or a total loss

(“Downside Protection”) Possibilities to participate in further financing rounds, if

milestones have been met or surpassed (“Upside Protection”) Influencing and supervising strategic decisions of the

management Control and timing of further financing rounds Determining the time of exit


Mutual concerns:

Long-term commitment of the management; filling vacancies in the current management

Preventing and resolving conflicts within the PE-syndicate

Financial strength of the company following the investment

Fiscal consequences of the investment


PE Fund Management

Newco Bankers

Target company

Vendor

TYPICAL BUY-OUT STRUCTURE

100 per cent€ 6 million

100 per cent

€ 0,2 million€ 4,8 million

€ 10 million

Service Debt

Mezzanine Debt

Buy-out Structure

Forms of Buy-out

Form of Buy-out

ScopeInitiatorAcquiror

MBO(internal Management)

MBI(external Management)

BIMBO(MBO + MBI)

EBO(Employees)

OBO(equity shareholders)

IBO(PE-Investor)

Spin-off

VIMBO(Vendor)

SEMBO(sale by PE-Investors)

PAMBO(< 100% of share)

Structuring issues

Tax structure Tax transparency: each investor should be treated in its home

jurisdiction as receiving evidence, interest and capital gains as if it were the direct honour of their leaving shares in the portfolio company

Deductibility of interest in connection with the acquisition debt Tax-effective use of good-will of the target company (depreciation &

good-will) Tax-effective use of tax loss a carry forwards of the target with profits

of the acquisition vehicle. Tax Treatment of Carried Interest

Corporate Structuring issues Debt push down issues: Financing a bank will usually seek to ensure

that i. the available liquidity (the profits) are used to repay the acquisition debt and ii. the assets of the company are provided as security for the acquisition debt. Both goals

are difficult to implement due to the capital maintenance/financial assitance limitations and requirements pursuing to section 82 GmbH (sections 52, 66a Aktiengesetz)

Liability Issues

- Representatives and warranties

- Assumption of liabilities (§ 1409 ABGB, 38 UGB, 15 SpaltG etc.).

Legal Documentation

Main Documentation Term Sheet

Subscription Agreement


Financing Documentation

Other Documentation Articles of association

Sub-shareholder agreements between the PE-Investors

Agreements with senior management

Employee / Management Stock Option Plan

Agreements on the transfer of intellectual property rights

Support agreements for management support

Term Sheet

Legal nature: generally not binding; intends to merely prepare the parties to enter into a binding agreement

Provisions on confidentiality, exclusivity, non solicitation, choice of law and jurisdiction are typically binding

Purpose:

Indicate commitment for further detailed of negotiations, in particular in case of binding confidentiality and exclusivity provisions; break fee

Record of the results of the negotiations as well as road map for further proceedings

Framework for distributing legal and economic risks of the contracting parties

Documentation

Acquisition/Subscription Agreement

Subscription Agreement: Agreement to sell and purchase or subscribe shares

Legal nature: Binding agreement which complies with all form requirements Key provisions:

Conditions precedent (regulatory approvals, stock exchange requirements, third party consents)

Termination rights Closing Purchase price (including purchase price adjustment, mechanism; debt free/cash

free purchase price) Closing balance sheets/accounts representations and warranties/indemnities (including provisions on awareness of

seller, awareness of a purchase, financial limits on warranty claims, time limits on warranty claims, joint net several liability)

Separate warranties/indemnities and consequences of breach Manager Company Vendor

Restrictive covenants, undertaking not to compete Disclosure letter

Shareholders Agreement

Legal nature: Binding agreement which complies with all form requirements

Purpose: Intends to comprehensively regulate future cooperation.

Typical content of the provisions: Precise wording of the principles established in the Term-Sheet, deviations usually as a result of the due diligence

Additional provisions:

Guideline for employee and management stock option plan

Non-compete obligations

Contribution of patents/intellectual property rights

Consultancy agreement with PE for management support


Shareholder Agreement – Typical Provisions

Typical Provisions:

Preferred Shares

Preferred dividends: provides for fixed interest on the capital to the PE-investor, usually combined with:

liquidation preference prior to all other common shareholders pursuant to which at an exit event the PE-investor will receive the amount he would have earned if the dividend had been paid-on over the life of the investments.

Liquidation Preference

Example Liquidation Preference:

• Liquidation Event

For the purposes of this Agreement, each of the following events shall be deemed a "Liquidation Event":

(a) the sale or other disposal of all or at least 50% of the assets of the Company and subsequent decision to distribute the proceeds of such sale or disposal to the Shareholders;

(b) a sale or other disposal of at least 50% of the shares in the Company;

(c) a merger of the Company with any third party; and

(d) a consolidation, liquidation, winding up or any other form of dissolution of Company.


Such events shall however only be deemed a Liquidation Event if

effected prior to a Qualified Public Offering.

• Liquidation Preference

Upon a Liquidation Event the proceeds of such Liquidation Event shall be distributed as follows:

Each holder of Series A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares shall be entitled, with respect to its Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, as applicable, (but, for the avoidance of doubt, not with respect to any other Shares held by such Shareholder) to elect between (i) participation in the distribution of the proceeds pro rata to its holding of Series A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares, as applicable, or (ii) receiving a liquidation preference as follows:


(a) Subject to the provisions relating to Series C Minus Shares in Section 3.3 and in Section 4.4.2, each holder of Series C Preferred Shares shall be entitled to elect to receive, in preference to the other Shareholders (excluding those holders of Series C Preferred Shares who elect to receive the same liquidation preference) and to the extent proceeds are available for distribution, an amount equal to the Series C Purchase Price applicable at the date of the Liquidation Event (i.e. subject to any adjustment pursuant to Section 3.3, as the case may be) multiplied by the number of Series C Preferred Shares held by the respective Investor at the date of the Liquidation Event (the "Liquidation Preference") plus an interest of 15% p.a. for the period of time beginning with the Effective Date (payable upon distribution of the liquidation proceeds in the course of a Liquidation Event) (the "Preferred Interest"; the Liquidation Preference and the Preferred Interest together the "Series C Liquidation Preference Amount"); provided, however, that the Series C Liquidation Preference Amount shall not exceed 150% of the total amount actually invested by the relevant holder of Series C Preferred Shares as part of the subscription of the Series C Preferred Shares (whether in the form of nominal share capital or shareholder contributions) (the "Liquidation Preference Cap").


(b) If the holders of Series C Preferred Shares have elected to receive a liquidation preference as per paragraph (a) above, each holder of Series B Preferred Shares shall be entitled to elect to receive, in preference to the other Shareholders (excluding those holders of Series B Preferred Shares who elect to receive the same liquidation preference) and to the extent proceeds are available for distribution, an amount equal to the Series B Purchase Price applicable at the date of the Liquidation Preference multiplied by the number of Series B Preferred Shares held by the respective holder of Series B Preferred Shares.

(c) If the holders of Series C Preferred Shares and Series B Preferred Shares have elected to receive a liquidation preference as per paragraph (b) above, each holder of Series A Preferred Shares shall be entitled to elect to receive, in preference to the other Shareholders (excluding those holders of Series A Preferred Shares who elect to receive the same liquidation preference) and to the extent proceeds are available for distribution, an amount equal to the Series A Purchase Price applicable at the date of the Liquidation Preference multiplied by the number of Series A Preferred Shares held by the respective holder of Series A Preferred Shares.

(d) The remainder of the proceeds shall be distributed amongst all Shareholders who have elected not to receive, or who are not entitled to receive, a liquidation preference according to this Section 4.3.2 (a) through (c) above, pro rata to their shareholdings in the Company.


For the avoidance of doubt, a Shareholder who has elected to receive a liquidation preference according to this Section 4.3.2 (a) through (c) above shall, to the extent that such liquidation preference has actually been received by such Shareholder, not participate in the pro rata distribution of the remainder of the proceeds.

The elections above shall be made within ninety (90) days from the occurrence of the Liquidation Event and shall be communicated by each Party entitled to such election to the Company in writing (with a copy to the other Shareholders). In case of a Party's failure to timely communicate its election to the Company, such Party shall be deemed to have elected the option which results in a higher absolute payment to such Party.

Shareholder Agreement – Typical Provisions

Redemption-Rights: right of the PE-investor to sell shares back to the company or to the founder at a minimum price. Usually not practical in case the required reserves do not exist or additional cash is necessary to reach the milestones set forth in the business plan.

Approval/Pre-emption right: sale of shares the third parties require the approval of the PE-investor (typically a majority of ¾) and are mostly connected to pre-emptive rights which allow the PE to influence the future shareholder structure.

Preemption Right/Right of First Refusal

Example 1: Preemption Right/Right of First Refusal:

• Procedure

If, at any time prior to a Qualified Public Offering, a Shareholder or a group of Shareholders wishes to sell or otherwise transfer (such Shareholder for the purposes of such transaction hereinafter being referred to as "Seller") any of its Shares to another Shareholder or a third party ("Proposed Purchaser") other than under a Permitted Transfer pursuant to Section 5.2 (b) through (k), such Transfer ("Sale") shall be made pursuant to the following procedures:


a) The Seller shall deliver a written notice ("Offer Notice") to the Company which shall immediately forward a copy thereof to all other Shareholders. The Offer Notice shall disclose in reasonable detail the Proposed Purchaser, the proposed Shares to be sold ("Shares To Be Sold") and the proposed terms and conditions (including the proposed bona fide price).

b) The other Shareholders shall, pro rata to their shareholding as opposed to the joint shareholding of all other Shareholders, be entitled to purchase all (but not less than all) of the respective pro rata portion of the Shares To Be Sold specified in the Offer Notice at the price and on the terms specified therein by delivering written notice of such election ("Election Notice") to the Seller within 30 (thirty) Business Days after delivery of the Offer Notice. If not all other Shareholders elect to purchase their respective pro rata portion of the Shares To Be Sold in an Election Notice, the Seller shall re-offer such portion of the Shares To Be Sold for which the Right of First Refusal has not been exercised to such Shareholders that have exercised their Right of First Refusal with respect to their respective pro rata portion of the Shares To Be Sold. For this portion of the Shares To Be Sold, the procedure set out in this sub-section (b) shall be re-applied, whereby (i) the Election Notice shall be delivered within 10 (ten) Business Days after delivery of the new Offer Notice and (ii) the refusal of a Shareholder to exercise his Right of First Refusal for such additional portion of the Shares To Be Sold results also in a refusal of the entire Right of First Refusal with respect to such Sale, including with respect to the portion of the Shares To Be Sold in the first offer round. This procedure shall be repeated until the Right of First Refusal has either been triggered for the entire Shares To Be Sold or not.


c) In case (at least one of) the other Shareholders has elected to purchase the Shares To Be Sold pursuant to the final Election Notice, the transfer of the Shares To Be Sold shall be consummated as soon as practicable after the timely delivery of the final Election Notice, but in any event within 14 (fourteen) days after such delivery.

d) In the event that none of the other Shareholders elects to purchase the Shares To Be Sold pursuant to the Election Notice and provided that the approval according to Section 5.1(o) has been granted, the Seller may, within 30 (thirty) days after delivery of the final Election Notice sell such Shares To Be Sold to the Proposed Purchaser at a price no more favourable than the price specified in the Offer Notice and on terms no more favourable to the Proposed Purchaser than specified in the Offer Notice, provided, that in the case the Proposed Purchaser is a third party, the Proposed Purchaser accedes to this Agreement pursuant to the procedure set out in the final paragraph. Any Shares To Be Sold not sold within such 30-day period shall be re-offered to the other Shareholders pursuant to this Section prior to any subsequent sale.


Purchase Price in Special Cases

If the Sale of Shares occurs (in full or in part) for other consideration than cash, the Parties agree that the price for the respective Share To Be Sold shall be the market value of such consideration. In the event of a share swap in connection with a listed company the consideration corresponds to the share price of such company on the day of the mailing of the first Offer Notice according to section (a). In the event the market value cannot be determined or the Seller or the majority vote of the other Shareholders with the consent of the Lead Investor (unless the Lead Investor itself is the Seller) do not agree on a value for such consideration, then the market value shall be determined by an independent auditor in accordance with the Rules and Guidelines of the Special Committee for Business Management and Organization of the Institute for Business Management, Tax Law and Organization of the Chamber of Certified Public Accountants for the Valuation of Enterprises KFS BW1 ("Fachgutachten (KFS BW1) des Fachsenats für Betriebswirtschaft und Organisation des Instituts für Betriebswirtschaft, Steuerrecht und Organisation der Kammer der Wirtschaftstreuhänder über die Unternehmensbewertung"; hereinafter "KFS BW1") as may be valid from time to time or in accordance with any appropriate substitute rules and guidelines commencing within 14 (fourteen) days after delivery of the Offer Notice. If the Seller and the majority vote of the other Shareholders with the consent of the Lead Investor (unless the Lead Investor itself is the Seller) do not agree on the appointment of such independent auditor within another period of 14 (fourteen) days, each Party shall individually be entitled to ask the president of the Austrian Chamber of Accountants (Präsident der Kammer der Wirtschaftstreuhänder Österreichs) to elect an independent auditor with binding effect for all parties. The valuation of such independent auditor shall be binding for the Seller and the other Shareholders. The costs of such independent auditor shall be borne by the Seller and the other Shareholders equally, whereby the other Shareholders amongst themselves bear such costs on a pro rata basis.


• Obligatory Transfer Event

Subject to the last paragraph of this Section , the Right of First Refusal shall also apply in case

a) of any enforcement proceedings into Shares or a commencement of insolvency proceedings of whatever sort, not withdrawn or repealed within 30 (thirty) days for other cause than insufficient assets, in each case of any Shareholder; or

b) a Shareholder is obliged, for whatever reason other than pursuant to this Agreement, to dispose of its shares to a Person that is not an Affiliate of such Shareholder, including without limitation in case of a divorce of the marriage of such Shareholder.

In such cases an Offer Notice shall be deemed to have been delivered by the respective Shareholder after Expiry of the respective remedy period. With respect to the Purchase Price applicable in such scenario, Section applies

Pre-emptive Rights

Example 2: Pre-emptive Rights:

Each Shareholder shall have the right to maintain its percentage ownership in the Company (calculated on an as-converted basis) by purchasing a pro rata portion of any further issuance of securities (i.e., shares or other securities convertible into shares) by the Company on the same terms as such securities are offered to the other purchasers. This pre-emptive right shall not apply during (i) a Qualified Public Offering, (ii) any share capital increase to the extent required to serve stock options or employee participation plans pursuant to any future stock option or employee participation plans approved by the Board of Directors, and (iii) any share capital increase to the extent required to service any adjustments to the Series A purchase price in accordance with the anti-dilution provisions.

Antidilution: in case of a decrease in the value of the company in future financing rounds, the PE-investor will be treated as if he had purchased the share at a lower price in later rounds (Full-Ratchet-Provision). Antidilution can be achieved by Weighted-Average provisions (in addition to the price in later financing rounds, the amount of newly purchased shares in relation to the total amount of shares to be purchased will be accounted for. Provision does not make sense, if the quota of the founders decreases excessively in the down-rounds.



Example Full Ratchet Anti-dilution Provision:

In the event of any issuance by the Company of new Shares, warrants, share equivalents or convertible securities of whatever nature or rights to purchase Shares, warrants, share equivalents or convertible securities of whatever nature, except for issuance of (i) new shares pursuant to any future stock option or employee participation plans (approved by the Board of Directors) or (ii) in the course of an initial public offering, for consideration less than the Series A purchase price ("Anti-Dilution Event"), the holders of Series A preferred shares shall, in addition to their statutory subscription right, be entitled to subscribe for such number of additional Series A preferred shares (the "New Anti-Dilution Shares") to be calculated on the following full ratchet formula:


New Anti-Dilution Shares = (IA / NSP) - NAS

In this formula the following expressions shall have the following meanings:

“NSP” shall mean the new share price per share in EUR paid under the Anti-

Dilution Event (the "New Share Price").

“NAS” shall mean the number of Series A preferred shares subscribed by

the holders of the Series A preferred shares prior to an Anti-Dilution Event.

“IA” shall mean the the total investment amount of the holders of Series A

preferred shares prior to the Anti-Dilution Event.

The New Share Price shall be subject to proportional adjustments for stock

splits, stock dividends, recapitalizations or similar corporate events, if any.


Any such New Anti-Dilution Shares shall be created, to the extent possible, by issuing new Series A preferred shares according to the Austrian Act of Capital Adjustment (Kapitalberichtigungsgesetz) or otherwise by issuing new Series A preferred shares by way of an ordinary share capital increase against payment of EUR 1 (Euro one) for each new Series A preferred share. The parties agree to vote in favor of any such share capital increase, whether pursuant to the Austrian Act of Capital Adjustment or by way of an ordinary share capital increase, and to waive their subscription right, to the extent they are not permitted pursuant to this Agreement to subscribe for such new Series A preferred shares.


Example Weighted Average Adjustment Formula:

If at any time after the original issue date of the Series A preferred stock the Corporation sells additional shares of common stock, then the conversion price for the Series A preferred stock shall be reduced to the price obtained by multiplying such conversion price by a fraction:

(i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such sale of additional shares of common stock plus (B) the number obtained by dividing the total consideration received by the Corporation for all additional shares of common stock sold by the conversion price for the Series A preferred stock in effect immediately prior to such sale; and

(ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such sale plus (B) the number of additional shares of common stock sold.

The “Common Stock Equivalents Outstanding” shall mean the number of shares of common stock that is equal to the sum of (A) all shares of common stock of the Corporation that are outstanding at the time in question, plus (B) all shares of common stock of the Corporation issuable upon conversion of all shares of Series A preferred stock or other convertible securities that are outstanding at the time in question, plus (C) all shares of common stock of the Corporation that are issuable upon the exercise of rights or options that are outstanding at the time in question.


Pay to Play: antidilution is only granted if old/current PE-investors participate in a down-round; in same cases: loss of preferred share and/or liquidation preference


Example for Pay to Play:

If in the event of dilutive financing rounds a holder of Series A preferred shares does not take up its right to subscribe for its pro rata entitlement in said dilutive round, then such holder of Series A preferred shares shall forthwith have no right to any anti-dilutive adjustment as a result of the dilutive financing round in question or any subsequent dilutive financing rounds in respect of those Series A preferred shares for which the subscription right is not taken up.


Milestone/Ratchet Provisions: Method to adjust the initial valuation. In case certain milestone are not met, the PE-investor is entitled to purchase additional shares (by capital increase or by transfer from former shareholders), or in the reverse case, the former shareholders are entitled to receive additional shares.

Milestone/Ratchet Provisions

Example for Milestone/Ratchet Provisions

For the purposes of this Agreement, the "Milestone" shall be deemed to have been met if, no later than 31 December 2009, (i) the Company has achieved cumulated Net Revenues in the financial years 2008 and 2009 of at least EUR 3,900,000 and (ii) the Company has obtained clearance from the US Food and Drug Administration (FDA) under Section 510(k) of the United States Food, Drug and Cosmetic Act, to market the Company product in the United States as a medical device for thermal regulation.

• Adjustment of Series C Purchase Price

In case the Milestone set forth in Section 3.2 or as otherwise agreed upon by the Parties is – for whatever reason – not achieved by the Company by 31 December 2009 (“Milestone Date”) at the latest (“Milestone Violation”), the Series C Purchase Price shall be reduced to a price per share of EUR 27.20 reflecting a reduced pre-money valuation of EUR 3,197,632 (Euro three million one hundred ninety seven thousand six hundred thirty two). In the event of a material change in the strategy or business plan of COMPANY agreed pursuant to Section 5.2(a) with the consent of the Lead Investor Representative, the Shareholders shall agree to any corresponding changes or amendments to the Milestone required as a result of such change. In the event the Lead Investor decides, in its sole discretion, not to invest the Lead Investor Third Tranche due to a Milestone Violation, no Shareholder shall receive any additional shares in the Company, subject to the following sentence. In such case, however, the Series C First Closing Subscribers with regard to their investment amounts contributed in the Series C Financing Round First Closing and the Non-Tranching Co-Investors with regard to their investment amounts contributed as part of the Series C Financing Round, who have paid in the entire Series C Purchase Price, shall receive, and the Company shall issue to such Series C First Closing Subscribers and to such Non-Tranching Co-Investors pro rata, additional new Series C Preferred Shares as required to reflect the reduced valuation as set forth above. For the avoidance of doubt any Tranching Co-Investor shall be free to contribute a Third Tranche also if the Lead Investor decides not to invest the Lead Investor Third Tranche due to a Milestone Violation, provided, however, that in such case such Tranching Co-Investor shall not receive any additional Shares.


In case the Lead Investor decides, in its sole discretion, to invest the Lead Investor Third Tranche into the Company despite of the Milestone not having been timely met, (i) the Lead Investor with regard to the investment amounts contributed as part of the Series C Financing Round Second Closing, (ii) the Series C First Closing Subscribers with regard to their investment amounts contributed in the Series C Financing Round First Closing, (iii) the Non-Tranching Co-Investors with regard to their investment amounts contributed as part of the Series C Financing Round Second Closing, and (iv) the Tranching Co-Investors who have paid in the entire Third Tranche with regard to their investment amounts contributed as part of the Series C Financing Round Second Closing, shall receive, and the Company shall issue to such Shareholders pro rata additional new Series C Preferred Shares as required to reflect the reduced valuation as set forth above (provided, however, that the relevant Party referred to in (i) through (iv) above has duly paid the entire Series C Purchase Price for all Series C Preferred Shares issued to it).

In the event the Lead Investor decides, in its sole discretion, to invest the Lead Investor Third Tranche, the Tranching Co-Investors shall not be obliged to invest their respective Third Tranche, provided, however, that in such event the following shall apply: The Series C Preferred Shares subscribed to by such Tranching Co-Investor in the Series C Financing Round Second Closing shall be automatically converted into "Series C Minus Shares". In a Liquidation Event (i) these Series C Minus Shares shall not entitle their holder to any Preferred Interest (as defined below) and (ii) the holders of Series C Minus Shares (the "Series C Minus Shareholders"), in respect of their Series C Minus Shares, shall receive any payments under the Liquidation Preference set out in Section 4.3.2(a) (which, as set forth above, shall not include any Preferred Interest) only after the Liquidation Preference payable to all holders of Series C Preferred Shares in respect of their Series C Preferred Shares (other than Series C Minus Shares) has been settled in full and to the extent proceeds are available for distribution after such settlement. The amount of Preferred Interest, which would have been payable to the Series C Minus Shareholders in respect of their Series C Minus Shares had they not been converted hereunder into Series C Minus Shares shall be paid to the Lead Investor and those Tranching Co-Investors who have paid in their entire Third Tranche in full (pro rata to their Series C Preferred Shares subscribed in the Series C Financing Round Second Closing). For the avoidance of doubt, the Liquidation Preference as set out in Section 4.3.2(a) below (in particular the Liquidation Preference Cap) shall not apply with respect to any Preferred Interest allocation under this Section. For the avoidance of doubt, Series C Minus Shares shall be deemed to be Series C Preferred Shares for all purposes of this Agreement, unless explicitly otherwise provided in this paragraph or elsewhere in this Agreement. For the avoidance of doubt, in case of any discrepancies between (i) the provisions of the Articles of Association relating to the rights attaching to Series C Preferred Shares and (ii) the provisions of this Agreement relating to the (reduced) rights attaching to Series C Minus Shares, the provisions of this Agreement shall prevail.


Any new Series C Preferred Shares to be issued pursuant to this Section 3.3 (the "Series C Preferred Third Tranche Shares") shall be created, to the extent possible, by issuing new Series C Preferred Shares according to the Austrian Act of Capital Adjustment (Kapitalberichtigungsgesetz) or otherwise by issuing new Series C Preferred Shares by way of an ordinary share capital increase against payment of EUR 1 (Euro one) for each new Series C Preferred Shares. The Parties agree to vote in favor of any such share capital increase, whether pursuant to the Austrian Act of Capital Adjustment or by way of an ordinary share capital increase, and to waive their subscription right, to the extent they are not permitted pursuant to this Agreement to subscribe such new Series C Preferred Shares.

In the event a decision to proceed with a Liquidation Event (Term Sheet signed by Lead Investor) or a Qualified Public Offering (binding engagement of investment bank) (“Exit”) has been taken prior to the Milestone Date in accordance with the terms of this Agreement (i) the adjustments set forth in this Section 3.3 shall not apply and (ii) the Lead Investor and/or the Tranching Co-Investor shall upon such Liquidation Event or Qualified Public Offering, as the case may be either pay the Lead Investor Third Tranche (to be paid by Lead Investor) or the Co-Investor Third Tranche (to be paid by the Tranching Co-Investors) or put the other Shareholders in a position as if the Lead Investor Third Tranche or the Co-Investor Third Tranche, as applicable, had been paid-in, applies.

Drag-Along Rights: Drag-Along Clauses obligate all shareholders to sell their interest, if the PE-investors sell their interest and the purchaser is willing to purchase a certain percentage of the shares of the company (usually 100 %).



Example Drag-Along Right:

In the event that, at any time prior to a Qualified Public Offering, a majority of the holders of

Series A preferred shares (the "Exiting Seller(s)") voting as a separate class intends to accept an

offer to acquire their entire shares in the Company from (one or more) third party(ies), such

Exiting Seller(s) shall have the right to force all shareholders (including – for the avoidance of

doubt – other holders of Series A preferred shares) to sell or otherwise transfer their entire shares

to such third party(ies) according to the following procedures:

The Exiting Seller(s) shall send a written notice to the Company outlining the purchase

price and the conditions offered by the proposed purchaser(s) for the purchase of the shares

in the Company. The Company shall immediately thereafter forward such notice to all other

shareholders. Within 14 (fourteen) days of the receipt of such notice or any later date set

forth in such notice, all shareholders shall sell their entire shares to the respective proposed

purchaser according to the terms of the respective offer. In no event shall the terms of the

offer to be accepted by the other shareholders be less beneficial than the terms upon which

any of the Exiting Sellers disposes of its shares (the “Drag-Along Right”).


Tag-Along Rights: obligate the PE-investors to allow other shareholders to co-sell at equal terms as the selling PE-investors.


Example Tag-Along Right:

In the event that, at any time prior to a Qualified Public Offering, a shareholder or

a group of shareholders (the "Obliged Seller(s)") intends to sell or otherwise

transfer share(s) or parts thereof to a third party or a shareholder (such sale being

a "Tag-Along Sale"), then the Obliged Seller(s) is (are) under the obligation to

arrange for those other shareholders who wish to do so, to be able to sell along,

transfer and/or swap the shares of such shareholders on a pro rata basis on the

same economical terms agreed between the Obliged Seller(s) and the respective

purchaser(s). Pro rata means that all other shareholders who wish to participate

in such Tag-Along Sale may do so in proportion to their respective shareholding

in all of the shares of the Company and to this extent replace the shares to be sold

by the Obliged Seller(s) to the proposed purchaser. The following provisions

shall apply to each Tag-Along Sale:


(a) If (an) Obliged Seller(s) wish(es) to proceed with a Tag-Along Sale, it (they) shall

deliver a written notice ("Tag-Along Rights Notice") to the Company. The

Company shall immediately thereafter inform all other shareholders of such Tag-

Along Rights Notice. The Tag-Along Rights Notice shall disclose in reasonable

detail the proposed purchaser, the proposed number of shares to be sold, the

proposed terms and conditions of the sale (including the proposed bona fide price)

as well as a statement by the proposed purchaser whether it is offering to all other

shareholders to purchase their shares or that it is offering to all other shareholders

to purchase their shares in the pro rata amount set forth above and under the terms

and conditions of the sale (including the proposed price) notified in the Tag-Along

Rights Notice by the Obliged Seller(s) ("Purchaser's Offer").


(b) Within 14 (fourteen) days of receipt of the Tag-Along Rights Notice, each other

shareholder may by written notice to the Company, declare acceptance of the

Purchaser's Offer (partial acceptance shall not be deemed an acceptance, except

where the Obliged Seller(s) explicitly agree(s)) ("Acceptance Notice"). In the

event that not all other shareholders participate in the Tag-Along Sale, the

remaining (fraction of) shares shall be sold by the Obliged Seller(s).

(c) The transfer of the shares to be sold and the shares covered by an accepted

Purchaser's Offer shall be consummated as soon as practical after the delivery of

the Acceptance Notice but in any event within 20 (twenty) days after the delivery

of the last Acceptance Notice.


Information / Approval: Approval by the PE-investors in case of measures outside the ordinary of business; regular reports on the development of operative business and of important financial indicators.


Board Nominations: The PE-investor will usually require to be able to appoint a member to the supervisory board or the advisory board; certain essential business transactions will be subject to the approval of the board member appointed by the PE-investor.

Registration Rights: In particular in case of an intended initial public offering (IPO) in the US, the (US) PE-investors will demand the right to force company via qualified resolution to sell their shares in the course of an initial public offering (demand registration rights), or the right to register their stocks if the company itself plans an IPO (piggy-back registration right).

Banking documentation

Loan Facility Agreement

Term loan

Overdraft

Mezzanine Financing

Security

Security documentation

Financial assistance issues

Inter creditor Agreement between Bank, PE and (possibly) management

EVERYTHING MATTERS

Thanks for your attention!

Dr. Phillip Dubsky

Economy & Finance

EVERYTHING MATTERS