Comments on: Term Sheet: Protective Provisions

By: Seed Financing | How to, Know how, Tips, Business Ideas, Ecommerce

Seed Financing | How to, Know how, Tips, Business Ideas, Ecommerce — Tue, 30 Aug 2011 04:41:38 +0000

[...] Protective Provisions(veto rights) of the Term Sheet [...]

By: Dan Shapiro » How much are startup options worth?

Dan Shapiro » How much are startup options worth? — Wed, 24 Nov 2010 06:56:44 +0000

[...] hadn’t. And then they have a set of terms called “protective provisions” which (more Bradness) explicitly allow them to block actions that are in the best interest of the company’s [...]

By: Term Sheet: Protective Provisions 保护性条款 « 创业&创投

Term Sheet: Protective Provisions 保护性条款 « 创业&创投 — Sat, 05 Dec 2009 05:50:03 +0000

[...] Term Sheet: Protective Provisions 保护性条款 [...]

By: Morning Star

Morning Star — Wed, 07 Jan 2009 01:55:51 +0000

In your post on the "Drag Along" provision, you write that an M&A transaction does not require unanimous consent of the stockholders. (For a Delaware company, for example, a consent of 50% of stockholders seems to be sufficient). How do these state rules interact with protective provisions in the term sheet? Does a provision saying that at least 50% of the Series A stockholders must consent to change of ownership trump the minimum required by state law? Also, in the case of a proposed acquisition, what is the mechanism for determining the outcome of votes? Do board members always vote representing the majority of their class of shareholders?

By: Jason Mendelson

Jason Mendelson — Wed, 07 Jan 2009 01:55:51 +0000

As for board voting, that is completely independent from shareholder voting. Board members vote as individuals while shareholders vote as individuals or entities. At the end of the day, you count up all the votes and see if you have agreement.

Do note, however, a properly running startup usually has close to perfect intelligence on whether or not a deal has support or not. It's highly unlikely that the company management will be surprised.

One last point – although the law may say more than 50% gets you approval, in reality acquires want a much higher percentage to protect against shareholder suits and appraisal rights, so in reality you are looking for a much higher percentage and thus the need for the drag alongs.

By: Morning Star

Morning Star — Wed, 07 Jan 2009 01:55:51 +0000

In your post on the “Drag Along” provision, you write that an M&A transaction does not require unanimous consent of the stockholders. (For a Delaware company, for example, a consent of 50% of stockholders seems to be sufficient). How do these state rules interact with protective provisions in the term sheet? Does a provision saying that at least 50% of the Series A stockholders must consent to change of ownership trump the minimum required by state law? Also, in the case of a proposed acquisition, what is the mechanism for determining the outcome of votes? Do board members always vote representing the majority of their class of shareholders?

By: Jason Mendelson

Jason Mendelson — Tue, 11 Mar 2008 06:11:35 +0000

Federal law does not normal "trump" state corporations law. In fact, you need to comply with both. We aren't your lawyers, but in our experience states don't individually mandate higher voting percentages, rather they may (or may not) require individual series votes regardless of the the company charter says. So while the documents may say that all the preferred votes together, state law may say each series gets a vote regardless.

As for board voting, that is completely independent from shareholder voting. Board members vote as individuals while shareholders vote as individuals or entities. At the end of the day, you count up all the votes and see if you have agreement.

Do note, however, a properly running startup usually has close to perfect intelligence on whether or not a deal has support or not. It's highly unlikely that the company management will be surprised.

One last point - although the law may say more than 50% gets you approval, in reality acquires want a much higher percentage to protect against shareholder suits and appraisal rights, so in reality you are looking for a much higher percentage and thus the need for the drag alongs.

By: Morning Star

Morning Star — Tue, 11 Mar 2008 01:14:49 +0000

By: John Furrier

John Furrier — Tue, 25 Jan 2005 00:21:43 +0000

Venture Capital Financing: Term Sheet: Protective Provisions

Another good post from the Brad Feld college of venture financing – part three in his series.

By: Peter Hoskins' Blog

Peter Hoskins' Blog — Tue, 18 Jan 2005 15:15:31 +0000

Brad Feld on Protective Provisions in Term Sheets

Brad Feld’s third installment on Term Sheets.