An investment that makes payment if the sponsor's share price falls eg to 70% of its initial value; sometimes relevant when exploring the use of contingent assets.

What is an equity derivative? Equity derivatives are contracts entered into between two parties, or purchased over an exchange, and which take their value from either a share price, a basket of shares or an index of shares. They have a wide variety of uses and allow investors flexible and cost effective access to the movements of shares and equity markets which are not available through direct investment in that particular asset class. Equity derivatives can be traded over-the-counter (OTC) or on exchange. Alternatively, there are also many structured equity products. They may be funded or unfunded. Equity derivatives are used primarily by funds and investors as speculative investments and by end-users and banks as commercial hedges. However, they also have a variety of other uses which will be covered in further detail below. Why use equity derivatives? Equity derivatives are a good option for an investor to access the benefit of equity investment without having to pay an upfront purchase price, together with stamp duty and other taxes. Purchasing a derivative is typically cheaper than

This Practice Note is part of the Lexis+® UK Corporate Private equity buyout transaction collection. Timing Preparation of a first draft of the investment agreement (IA) and articles of association (Articles) can begin at any time after the main commercial transaction terms have been agreed and the heads of terms (for the equity component of the transaction) have been signed. Often, though, commencement is delayed until the drafting of, and negotiations to agree, the share purchase agreement (SPA) are well advanced and the private equity investor has some certainty that the transaction will proceed before incurring further costs on documentation. In addition, the due diligence and disclosure process will run concurrently with the drafting and negotiation of the IA and Articles. Warranty and indemnity cover in the IA is significantly lighter than that under an SPA, however the process is much the same. Generally, the investor's lawyers will prepare the first draft of the IA and Articles and submit them to target management's lawyers for mark-up. Management will generally have its own independent

Companies seeking to raise finance may use equity financing instead of or in addition to debt financing. To raise equity finance, a company creates new ordinary shares and sells them for cash. The new share owners become part-owners of the company and share in the risks and rewards of the company’s business.

This term is used interchangeably with sponsor and refers to the equity'>private equity institution that is investing in the transaction.

A warrant entitling holders to exercise a call to substitute the warrant for a share or shares at a fixed price (or 'strike' price).

Typically associated with mezzanine financing where a small number of shares or warrants are added to debt financing so PE investors can purchase discounted shares. Convertible features and warrants are offered as equity kickers to make securities attractive to investors.

Warrant entitling holders to exercise a call to substitute them for shares at a fixed price (or strike price).

The borrower's right to redeem (ie pay off) a security. English law prohibits any contractual provision which prevents the borrower from exercising this right (known as a clog on the equity of redemption).

Actuaries of pension schemes make an allowance for the fact that equities in the pension scheme's portfolio will normally out-perform the investment returns of fixed-interest (ie gilts or bonds) – as they should if the economic theory of capitalism is correct. The benefit of the investment risk is incorporated in the discount rate or the assumptions underlying the recovery plan.

A partner who has a full interest in the business of the partnership and enjoys full rights, including the right to participate in the profits and losses of the partnership and vote on all partnership matters.

A way in which older people can use the value of their home to release cash.