Mastering Private Equity. Prahl Michael

with regards to specific events such as an IPO, new equity financing or increase in the ESOP and can extend to governance matters such as the right to approve the appointment of senior executives.

      DRAG-ALONG/TAG-ALONG PROVISIONS: A drag-along provision gives the majority shareholder the right to force other shareholders to sell their shares in a third-party transaction. This provision enables the majority shareholder to sell out and achieve a clean break at exit. A tag-along provision provides minority shareholders with the right to sell their shares in conjunction with the majority shareholder in a third-party transaction, participating in any liquidity event pro rata.

      TRANSFER RIGHTS AND NEW ISSUE RESTRICTIONS: The term sheet typically includes preemptive rights for share transfers and new issues, stating that the existing shareholders shall be offered any shares first in the case of an existing shareholder wanting to sell out.

      INFORMATION RIGHTS: This provision clearly states which operational and financial information must be provided to preferred shareholders and when; the requested information usually includes at a minimum unaudited monthly and annual financial statements.