1E9Ct5D

securities equal or senior to those held by the fund; approval of exit events(mergers and acquisitions and initial public offerings); the payment of dividends;the repurchase of ordinary shares; adverse changes to the rights of the shares;increasing the size of the board of directors; incurring indebtedness in excess ofa specified amount; material changes to the business of the company;management type activities including, hiring and firing of key executives; banksignature rights; establishment of an annual operational budget.Right of first refusalInvestors usually have a right of first refusal in relation to the sale of shares byother shareholders. Sometimes this right is limited to the holders of a certainminimum number of shares (for example, 2% of the outstanding share capital)and is exercised on a pro rata basis. This right is usually not reciprocal, that is,the holders of ordinary shares do not have a right of first refusal in relation tosales of shares by the fund.Exercise of the right of first refusal is often conditional on the purchase by theshareholders of all the shares being offered. There are exceptions for transfers ofshares for estate planning purposes.No saleOften founders are completely barred from, or severely limited in selling theirshares for a specific period of time (often at least three years, but occasionallyuntil exit). Typically, exceptions are made for transfers of shares to familymembers or for other bona fide estate planning purposes. These restrictions areintended to ensure that the founders recognize their economic interests as beinglinked with the success of the company.Minority Shareholder ProtectionInvestors have the right to sell shares together with the founders (or other holdersof ordinary shares), if and when the founders sell shares to third parties. Thisright (tag-along right or right of co-sale) may be exercised if the investor electsnot to exercise its right of first refusal. The rationale is that the investors areinvesting in the founders, and if the founders decrease their shareholdings, theinvestors have the right to exit with the founders.