STEP 4: Negotiate & Sign Term Sheet

d. Ask if they have any questions – encourage dialogue and transparency in the discussion; remember this may feel intimidating to the promoter so work hard to put them at ease with the process. 5. RM schedules a follow up meeting three days after the LOI meeting to discuss and ideally sign the draft LOI: a. If the signature process moves beyond the expiration date, the decision to pursue must be revisited with the Dir. AM; and if the decision is to continue to pursue, then a new LOI must be drafted and resubmitted for signing. 6. The RM updates the IM team at the weekly Asset Management meeting on the status of the LOI. 7. Once signed, the LOI (in PDF format) is saved to the appropriate prospect’s shared drive folder.

Standards:

● Note to Reader: RENEW recommends the promoter engage a lawyer at this stage, if they have not done so already. While this is a cost on the promoter, it is important that they have their own counsel advising them through the investment process. The investment firm / fund should encourage their counsel to attend the PE Investment

Seminar training (or in-house equivalent), so they are familiar with the investment process as well. The investment firm’s / fund’s LL should be prepared to educate outside counsel on equity financing during this stage. In the past, RENEW has encountered delays and had to abandon deals because the promoter waited too long to bring in outside counsel.

● The RM is accountable for getting the LOI drafted, finalized and signed.

● The LL and Dir. of AM must review and approve the draft LOI.

● The draft LOI must be presented to the prospects within five business days of receiving the IIC Active Pipeline approval. The LOI expires in 10 business days from being sent to the prospect after the meeting. The LOI must be signed or refused within 15 business days from IIC active pipeline approval.

● [INV./FUND MANAGER NAME] must never pressure the owners to decide; simply explain that you’ll need to refresh the LOI if their review takes longer than the expiration date.

STEP 3: CONDUCT CDD & PREPARE THE FINANCIAL MODEL, DRAFT TERMS AND E-CIM

Outcomes:

● To have a stronger view on the investment growth plan, assumptions, risks and return potential.

● To prepare the Financial Model, the Executive Confidential Information Memorandum (eCIM) and Term Sheet.

Process:

1. The RM holds a “brain trust” meeting with the SIM, SGS COO/CFO and IIC to develop bullet points of the e-CIM (business case and assumptions) and update the Due Diligence Light – CDD Checklist to ensure the best thinking has been gathered from the team to guide the DD light: a. Drawing on information from the Deal Screening Form (DSF) and company provided files, the SGS CFO, Investment Analyst, RM, SIM and IIC meet to write/review/update bullet points under each section of the e-CIM and assumptions for the growth plan and financial model. The DSF, audited financial statements and any business plan or growth plan provided by the company are key inputs for this meeting. Important here are to identify the assumptions [INV./FUND MANAGER NAME] has about the business for each section of the eCIM; to flag key risks that need to be researched. The e-CIM frames the discussion and captures the assumptions that the team must test during the first light due diligence (Due Diligence Light - CDD Checklist), and then the more fulsome due diligence. Specifically, the financial drivers and the assumptions –those that drive the profitability, cash flow and IRR – should be articulated. These assumptions must be documented during this meeting and used by the IM analyst and SGS CFO during their desk research and drafting of the draft financial model. Ideally the company has provided their audited financial statements, which can be the best source of information on the company’s performance. b. “Brain trust” meeting framework: i. Length: Two hours. ii. Lead: RM. iii. Attending: IIC, SGS COO and CFO, Investment Analyst, SIM and RM. iv. Purpose: to outline the main sections of the e-CIM, with special attention on the business case/growth plan, financial assumptions. v. Outcomes: Bullets for each section that guide the Due Diligence Light CDD Checklist and Financial Model; draft e-CIM. 2. RM holds meeting with SGS CFO, COO and IM analysts to update the Due Diligence Light - CDD Checklist, and assign team members sections of the checklists to complete: a. RM remembers to update the activities and milestones into the Active Pipeline Project Plan tracker.