Rollover Contribution Agreement

In addition to other stock-based management incentives (for example. B participation in an employee investment plan), rollover trading structures are used to better coordinate the post-transactional interests of the PE investor and sellers (for example. B if important founders or executives must remain to some extent with the target entity after the transaction). The buyer also benefits from a rollover structure, as this results in a reduction in the cash expenses required to pay the purchase price. A rollover structure may also be favourable to the sale of parties by offering them the opportunity to participate in a potentially high upward trend after a post-closing business exit (one thinks of a “second apple bite”), especially in cases where PE partners have a balance sheet in creating significant benefits after closing by their capital , their contacts or operational know-how. Rollover structures can also fill potential gaps that may exist between sellers and buyers through the target company. From an economic point of view, the introduction of equity is similar to that of the inclusion of a beneficiary in the agreement. In both cases, the final value for the seller depends on the success of the target transaction after the transaction. It`s unusual, but not entirely unheard of, to link puts and Calls to a stock roll-up agreement.

The inclusion of separate exits for the management team is at odds with the financial buyer`s usual objective of ensuring that the payment of the “skin in the game” of the management team is linked to a successful exit from the financial buyer. A practical difference between a production cycle and a rollover is that the monetization of rollover-equity requires not only the smooth post-sale operation of the target activity, but also a second sale before a liquidity event. The importance of a second successful sale suggests that the target owners, as members of their sellers” Due Diligence “, should look at the buyer`s balance sheet, both as an operator and as a portfolio reseller. Rule 506 exemption. The vast majority of private offers of securities, including share rollover, are structured so that they can benefit from the exemption from the state`s safe harbor in accordance with Rule 506. One good thing about section 506 is that there is a federal securities registration law. Under Rule 506, issuers can raise an unlimited money supply from an unlimited number of “accredited investors” or up to 35 unreased investors. Consideration should be given to limiting rollover participants to accredited investors. The term “accredited investor” is defined in Rule 501 of Regulation D and includes: Typical minority owner-minority problems faced by rollover participants, but buyers and sellers must be aware of the potential tax consequences associated with issuing limited shares in a rollover transaction.

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