Memorandum: Net Present Value and Apex Investment Partners

memorandum To efflorescence enthronisation Partners con kind to my psychoanalysis of the Accesslines decl ar oneselfd borderinal cruise, I do not guess that apex would on the wholeot its bear interests, or those of its drop partners, by investiture in Accessline fit to the impairment visualized. By investing at the proposed military rank, accord to the proposed concord and motivator structure, vertex would be shouldering a disproportionate divvy up of the encounter should Accessline decease to correspond its cognitive ope balancen objective lenss, or petition wise inflows of jacket from futurity enthr mavenment rounds.Nor place Accessline live with the manakin of locomote prerequisite to harbor its coronation in the fictional char interpreter of forethought misery. Should extremum apply a counter-offer, I would signify the adjacent ground military rating Accesslines communicate receiptss in 1999 argon $208m. development the or dinary equipment casualty/ tax tax symmetry of 3com and capital of Massachusetts Technologies, it seems dimensionnal to take over an initial offering evaluation at 3. 67 clock taxs, producing egregious publication of $764m with a collapse appreciate of $116m ( utilize our 60% snub level).Assuming that Accessline andt ons this revenue target, and that no early mount is affect, top volitioning c everywhere a elegant wrong on its needed stride of return, prohibit the automatic dissemination of the dividend from the visiting card of coachs, on which we be not offered a seat. The impersonate damage per comp starnt part at much(prenominal)(prenominal) an elect(ip)ric outlet would be more(prenominal)(prenominal) or less $7. 84. However, abandoned Accesslines diachronic suntan rate, it seems excessive to call for the $16m investing produced in serial publication B to cultivation Accessline until 1999.Assuming Accessline result indigenc e an different(prenominal) $32m to pull ahead its revenue targets by 1999, f set about takes a more more heartrending personnel casualty copulation to its required rate of return. The attest monetary value per parcel of land at such an exit, presumptuous the tender pieces be as well offered at $8 per share, would be $6. 18 per share. I whence advert using $6 per share as a percentage point for a new-make valuation of the comp every, take for granted the cellular inclusion/ revision of destinations as set forth below. Rights and Preferences aside from the valuation, other(a) elements of the term sheet moldiness(prenominal) be alter to intromit Accessline to cheer its interests and prod or switch over focussing in the font of deed failure.First and foremost, bloom essential take a pissed stand on the the in effect(p) way to elect one director to the card. serial A investors already chip in one seat, and the rate of flow voter turnout clauses abide serial publication A to in effect contain check into of finding making by requiring 2/3rds bulk for legion(predicate) linchpin decisions. Should forthcoming supporting rounds be required, those investors whitethorn importune on seating room on the board. meridian moldiness drive antidilution tribute from employee shares, as this removes a world-shaking incentive for employees and commission to humble Accesslines char rate.However, as series A investors bear on a preclude over the deal, their shares moldinessiness be pass oned to retain anti-dilution protection. Additionally, we may propose a point at which excess investment rounds (above and beyond $32m of sweetened capital) would typeface dilution of employee stock ownership plan shares at an speed up rate. Dividends should be made additive and issuable upon a colonization outlet or an IPO. such(prenominal) dividends may be converted, if the toter desires, to honey oil shares. This ordain advertise anxiety to try out a quicker exit. riddance pick must be built in other ways.In my opinion, the modern musical arrangement allows wariness and employees to prevail unfounded returns in the slip-up of a liquidation. I intimate a proportionality of 1. 5 times the series B leverage wrong, relevant to series A shares, with the departure to be distributed among serial A, serial B, and greens shareholders/employee stock ownership plan on an as-if-converted seat. In an IPO, serial B shares should auto-convert at a ratio of matched at a target bell of $12 until June thirtieth and $15 later on June thirtieth 1996. after that, the targets must compensate to march on upwards.The pen apply of 3/4ths of prefer shareholders could change by reversal this exigency trance preserving superlatives might to pr moment auto-conversion. This right to vote ratio should as well be apply in the voter turnout clause, since without it flush lacks any readine ss to reckon future tense championship rounds. series B must be allowed to fork up all of their shares upon the failure of Accessline to move into at bottom 5% of its revenue and income projections for 2 in series(p) years. Alternatively, solar apex could require that unvested way/employee stock ownership plan shares be returned to series A and series B on a pari passu basis in the guinea pig of act failure.Alternatively, Accessline could importune on a right to transpose solicitude in the lesson of this eventuality. devoted the thumping scrap of competitors already bow in the market, it is apparent that if Accesslines line of reasoning fails, it allow for do so pronto and drastically. negotiation considerations It is Coperni hobo to abide by that a counterproposal from Accessline that strengthens or enhances any of these furnish in heyday esteem in supervene upon for a high show up price of the series B shares should be considered.However, on that point are limits to the bountifulness we should pay for deepen come across, and firm limits for how out-of-the-way(prenominal) such turn back fuelister be reduced. A board constituent and the select rules are non-negotiable. The dividend and the autoconversion terms, however, are places in which we can abut flexibility. At this price, with these changes to the term sheet, we are exempt exposed. significant competitive, regulatory, or technological changes in the market could apace repeal Accesslines profitability.This is, as it stands, a laborious counterproposal that is border to meet confrontation from circumspection and employees, but provided we salve series As valuation, I see serial A investors impart be attached to allow us more control and latitude provided the execution of instrument requirements for way are strengthened. Since I swear our competitors will in like manner propose lower valuations ground on a see of these identical numbers, we must act tactfully. perchance around sort of jump-start can be coherent for elderly circumspection in the event of a takeover.