Analyses and Suggestions Regarding the Deal Terms of Investors for Rbs Group

Analysis of the Deal Terms of

RBS Group

MGMT 180

May 27, 2014

Sun (Sounghyeon) Kim

Victor Ou

Syazwan Aiman Sobri

Contents

Executive Summary:        3

Problem Statement:        3

Structuing of Series A and B Preferred Shares:        4

Founders’ Shares:        7

Company Control:        8

Executive Summary:

The purpose of this memorandum is to provide analysis and clarifications regarding the structuring of debt and equity and the deal terms of RBS Group in its next round of financing which will involve Mid-Atlantic Venture Fund II, L.P and Walnut Venture Associates. This analysis includes the problem statement of the situation which addresses the structuring of the shares of the new investors, namely the Series A and Series B preferred shares and what each one entails, the proposition for the vesting of Founders’ shares as well as company control. We have also provided a table detailing four exit scenarios of the company with different price valuations and the returns for each category of shareholders. The main criteria that must be addressed would be the terms surrounding the structure of Series A and B Preferred shares as well as the company control

        We believe that you as the CEO should review the information contained within this memorandum to decide whether our recommendation would be the best under the current circumstances.

Problem Statement:

        In the term sheet presented to you, there are many limitations and restrictions outlined that the investors have imposed in order to presumably protect their investment. Of these provisions, the preferences associated with the Series A and Series B stocks, the liquidation preferences, and the structure of control within the company should be of particular interest to you. The Series A Preferred stock acts nearly identical to a debt financial instrument. It does not vest into equity at all, but holders of this Series A Preferred stock are guaranteed dividends of 8% a year from your company. This in essence acts as a loan for RBS while not exactly having some of the major drawbacks of bank loans, such as their ability to seize your assets should you miss payments. They also have no direct voting rights.  However, they do have liquidation preferences before everyone else. The Series B Preferred stocks do have voting rights and in the event of liquidation, have the choice of either vesting or taking dividends, whichever is larger. We hope that this memorandum to you will help you understand the structure of this deal and why the investors have structured it the way they did. In addition, you will be able to see more clearly where the power of leadership lies. Another issue we will bring to light is the minimum amount that your company should exit at in order for all participants to be sufficiently compensated, including yourself. Another critically important issue that will be discussed are the restrictions that will be imposed on your share in the company. Your shares in the company will be restricted from vesting until certain time thresholds are met. This is implemented in order for the investors to have some assurance as to your continued performance in the company as CEO in the coming years. By the end of this memorandum, we will have presented you with a much more clear picture of the new structure of RBS, should you choose to accept this deal.