Equity financing terms
The outline finance terms below describe the terms under which any equity investment by the Building Scotland Fund (BSF) may be made to the requestor of finance (the Applicant).
These are indicative characteristics of equity financing by BSF and are not binding terms for any Shareholders Agreement or Articles of Association (which will be negotiated separately).
These terms are non-exhaustive and documentation will contain other provisions typical to this type of transaction.
These terms may not uniformly apply to all types of investments and actual terms will be negotiated and agreed on case by case basis.
These terms may be revised as further due diligence is undertaken or market conditions change.
List of terms
The Scottish Ministers acting through BSF.
Entity or individuals that own the requesting entity and their ownership structure.
To be provided by the Applicant, and to satisfy BSF’s eligibility criteria. The project should support economic development in Scotland in a positive way.
Equity finance made available to the Applicant, will limit the New Shareholder to hold a minority interest in the Entity. The minority equity stake and such proportion would need to be a sufficiently small so as not to change the statistical classification of the investee company to public. This treatment will also be dependent upon the powers and control conferred upon BSF as minority shareholder. In most cases, this will mean that the stake cannot exceed 30%.
To be agreed in line with the Applicant’s request and assessed alongside other co-financing and sources of funds.
The minimum BSF investment in a single project is likely to be £1 million, although BSF retains discretion to consider applications under this amount.
The level of funding will also be based on BSF’s valuation of the Entity and expected equity return.
Whether the funding is provided in one lump sum or in tranches will be determined on a case by case basis.
Investor protection rights will be determined on a case by case basis with reference to:
• decision making and veto rights (both at shareholder and director level)
• board seat(s) and board observer rights
• right to receive business information
• rights to participate in future issues of shares
• non-compete undertakings from Other Shareholders
• right to “tag-along” on any sale of the Entity
Equity returns will be in proportion to shareholders’ relevant percentage holdings.
Each Other Shareholder and New Shareholder will meet their own costs and expenses associated with due diligence unless agreed otherwise.
Shareholders shall share in the Dividends in proportion to their respective relevant percentages.
Standard for a funding of this nature including in form and substance satisfactory to the New Shareholder:
• evidence that the Other Shareholder's equity contribution (where relevant) has been made in proportion with the agreed shareholder agreement
• provision by the Other Shareholder(s)/Entity of all necessary third party reports as existing or required by the New Shareholder all addressed to the New Shareholder
• evidence that all key assets/rights are owned by the Entity
• conclusion of the New Shareholders commercial and financial due diligence review
• provision by the Other Shareholder(s)/Entity of all corporate, constitutional, KYC and ownership documentation as required by the New Shareholder
• provision by the Other Shareholder(s)/Entity of all financial information of the Other Shareholder(s)/Entity including financial statements and/or pro forma balance sheets, as required by the New Shareholder
• any other conditions deemed relevant following the New Shareholder’s due diligence
Standard representations and warranties for transactions of this nature.
[Representations and warranties will be from the Entity and by Directors/Other Shareholders as appropriate.]
It would be expected that the governance arrangements were compliant with the relevant legislation and any Board representation is commensurate with the New Shareholder’s shareholding percentage/voting rights.
The New Shareholder will require certain information on a regular basis likely to include the following:
• progress against the Business Plan: to be regularly reviewed at meetings of the Board
• performance against the Annual Budget: to be reviewed by the Board at least every three (3) months and the Board shall carry out at least every three (3) months a review of a rolling 12 month forecast
• performance against KPIs for the business: to be reviewed by the Board at least every three (3) months
Wherever reasonably practicable, additional funding is expected to be provided by a third party who usually engages in the provision of such funding on the following basis:
• such funding shall be obtained on the most favourable commercial and financial terms which could reasonably be expected to be obtainable by the Company or the relevant Subsidiary at the time of borrowing
• no lender or prospective lender shall be given a right to participate in the equity share capital of the Entity or any Subsidiary without any prior written approval of the New Shareholder
• nothing shall oblige the New Shareholder to provide any guarantee and/or other security in respect of the borrowings of the Entity and/or any Subsidiary and such funding shall otherwise be provided on the basis that it is without recourse to the New Shareholder
The New Shareholder may at any time transfer the whole (but not part only) of its interest in the Ordinary Shares to another Public Sector Body without the written consent of any Other Shareholder.
Circumstances under which Other Shareholders may be required to transfer their shares in the Entity will be assessed on a case by case basis.
The New Shareholder will be entitled to participate in the sale of the Entity
Law of Scotland
Building Scotland Fund Team
Economic Development Directorate
5 Atlantic Quay
Telephone: Central Enquiry Unit 0300 244 4000