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    Svnewtech series-a-termsheet-100108184114-phpapp01 Svnewtech series-a-termsheet-100108184114-phpapp01 Document Transcript

    • A Co. SERIES A PREFERRED STOCK FINANCING PRINCIPAL TERMS The following summarizes the principal terms of a proposed Series A Preferred Stock financing of A. Co., a [Delaware] corporation (the "Company"). This term sheet is qualified in its entirety by the actual terms of the investment documents for this transaction. In the event of any conflict or inconsistency between this term sheet and the investment documents, the terms of the investment documents will govern. Except for the provisions under “Confidentiality” and “No Shop” below, this term sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation. I. SUMMARY Amount: $X million Type of Security: Up to Y,Y00,000 shares of Series A Preferred Stock ("Preferred") Price per Share: $0.ZZ ("Original Purchase Price") Closings: First Closing on or around __________, 2010. Minimum of $A00,000 to be raised for First Closing. Subsequent Closings until round closed, but not later than __________, 2010. II. PROPOSED CAPITAL STRUCTURE Outstanding(1) Pro-Forma(1) Shares % Shares % Founder Common Stock Series A 0 0 Employee Reserve(2) Totals: 100.0 (1) On a fully-diluted and as-converted basis. (2) Subject to stock/options vesting over four years. As of the date hereof, the Company has granted no options, but has committed options for _________ to [aaaaaaaa].
    • Capitalization: The Company has authorized capital stock consisting of 30,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. No Preferred Stock is currently issued or outstanding. For the proposed financing, approximately 4,250,000 shares would be designated as Series A Preferred Stock. III. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF Dividends will be payable on Preferred when and if PREFERRED declared by the Board of Directors and are non- cumulative. Holders of Preferred will be entitled to Dividends: receive, prior to any payment of dividends to holders of the Common Stock of the Company (the "Common"), annual dividends in the amount of 7% of the Original Purchase Price per share. Liquidation Preference: In the event of any liquidation or winding up of the Company, the holders of Preferred will be entitled to receive in preference to the holders of Common an amount equal to the Original Purchase Price, plus any declared but unpaid dividends. After payment of that amount to the holders of Preferred, the remaining assets will be distributed to the holders of Common. A merger, acquisition or sale of substantially all of the assets of the Company in which the shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation will be deemed to be liquidation. Conversion: The Preferred will be convertible into Common at any time at the option of the holder. Initial conversion ratio 1:1, subject to adjustment as provided under “Antidilution Protection” below. Automatic Conversion: All Preferred will be automatically converted into Common, at the then applicable conversion ratio, in the event that (i) the holders of at least a majority of the Preferred consent to the conversion to Common or (ii) upon the closing of a firm commitment underwritten public offering of shares of the Common of the Company at a public offering price per share (prior to underwriting commissions and expenses) of not less than $5.00 in an offering with proceeds of not less than $15,000,000. Antidilution Protection: The conversion ratio for Preferred will be subject to adjustment on a “broad based” formula basis for 2
    • future issuances of capital stock at a purchase price less than the Original Purchase Price, with customary carve-outs, including issuances to employees, consultants, officers or directors of the Company, mergers or business combinations, or issuances in connection with debt or equipment financings approved by the Board of Directors. Proportional antidilution protection for stock splits, stock dividends, recapitalizations and the like. Redemption: The Preferred is not redeemable. Voting Rights. Each share of Preferred carries a number of votes equal to the number of shares of Common then issuable upon its conversion. The Preferred will vote together with the Common and not as a separate class, except as required by law and as provided below. Protective Provisions. So long as at least 1,800,000 shares of Preferred remain outstanding, consent of the holders of a majority of the outstanding Preferred will be required for: (i) any adverse amendment or change to the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Preferred; (ii) any action that authorizes shares of any class of stock having preferences superior to or on parity with the Preferred; (iii) any action that reclassifies any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on parity with the preference of the Preferred; (iv) any merger or consolidation of the Company with one or more other corporations in which the shareholders of the Company immediately after such merger or consolidation hold stock representing less than a majority of the voting power of the outstanding stock of the surviving corporation; (v) the sale of all or substantially all the Company's assets; (vi) the liquidation or dissolution of the Company; (vii) the declaration or payment of a dividend on the Common (other than a dividend payable solely in shares of Common); or (viii) the repurchase by the Company of any shares of its capital stock, except redemption or repurchase of shares of Common from employees, directors or consultants upon termination of their employment or service pursuant to agreements providing for such repurchase. 3
    • IV. REGISTRATION AND OTHER RIGHTS One demand registration exercisable six months after the Company's initial public offering by Demand Rights: Holders of 50% or more of the Preferred (or Common issued upon conversion of Preferred or a combination of such Common and Preferred), for an offering to the public of not less than $10,000,000, subject to customary limitations. Registrations on Form S-3: One demand registration exercisable annually by Holders of 30% or more of the Preferred (or Common issued upon conversion of the Preferred or a combination of such Common and Preferred) for offerings with proceeds of at least $2,000,000 on Form S-3 (if available to the Company). Piggy-Back Registration: The Investors and the Founders will be entitled to "piggy-back" registration rights with respect to offerings registered by the Company, subject to the right of the Company and its underwriters to reduce the number of shares of the Investors and Founders proposed to be registered in view of market conditions. All shares proposed to be registered by the Founders will be cut back prior to any reduction of the number of shares proposed to be registered by the Investors. Registration Expenses: The registration expenses (exclusive of underwriting discounts and commissions) of all demand registrations, Form S-3 registrations and piggy-back registrations will be borne by the Company. 4
    • Other Registration Other provisions will be contained in the Investor Provisions: Rights Agreement with respect to registration rights, including cross indemnification, the agreement by purchasers of Preferred not to sell any Common that they hold for a period of 180 days following the effective date of the registration statement for the initial public offering or 90 days following subsequent public offerings (subject to officers and all significant shareholders of the Company entering into similar agreements). Termination of The registration obligations of the Company to each Registration Rights: Investor will terminate upon the earlier of five years after the initial public offering or once all such stock held by an Investor may be sold under Rule 144 during any ninety day period. Information Rights: The Company will deliver unaudited annual financial statements to all Investors. Right of First Offer: Preferred shareholders [who hold at least 500,000 shares] will have a right to participate in future financings in order to maintain their pro rata ownership interest. Stock Restriction Each employee will execute a stock restriction Agreement; Right of First agreement with the Company pursuant to which the Refusal: Company will have a repurchase option to buy back at cost a portion of the shares of Common held by such person in the event that such shareholder's employment with the Company is terminated, prior to the expiration of 36 months from the date of employment. The Company will also have a right of first refusal with respect to any vested shares proposed to be resold or transferred, which right will terminate immediately prior to a public offering. Right of First Refusal and Each Investor, each Founder and the Company will Co-Sale Agreement: enter into an agreement pursuant to which any Investor who proposes to sell all or a portion of their shares to a third party will offer the Company an assignable right to purchase the offered shares on terms no less favorable to the transferror than those offered by the propose transferee, and each Founder, if he proposes to sell all or a portion of his shares to a third party (subject to a 15% carve out), will offer the Investors the right to participate in such sale on a pro rata basis. 5
    • V. MISCELLANEOUS Proprietary Information Each officer and key employee or consultant of the and Inventions Agreement: Company will enter into a customary proprietary information and inventions agreement with the Company. The Purchase Agreement: The purchases of Preferred will be made pursuant to a preferred stock purchase agreement reasonably acceptable to the Company and the Investors, which agreement will contain, among other things, appropriate representations and warranties of the Company, covenants of the Company reflecting the provisions set forth herein and appropriate conditions to closing which will include, among other things, exemption of the offering under applicable securities laws. The Stock Purchase Agreement will provide that it may only be amended and any waivers thereunder will only be made with the approval of the investors purchasing a majority of the Preferred. Expenses: The Company and the Investors will each bear their own legal and other expenses with respect to the transaction. Confidentiality: The Company and the Investors each agree that neither it, nor its subsidiaries, affiliates, employees or representatives will disclose or allow disclosure of this Term Sheet or the information contained herein to any party other than its own entities, personnel and agents having a need-to-know, or to potential investors acceptable to the Investors in connection with the subject Series A Preferred financing, without the express prior written approval of the other party. 6
    • No Shop: In consideration of the Investors’ commitment of substantial resources to perform and complete a due diligence review of the Company, by signing this Term Sheet, the Company agrees on behalf of itself, its officers, directors, shareholders, agents, representatives and affiliates, not to directly or indirectly initiate, solicit, encourage, discuss, negotiate or accept any offers or proposals regarding the sale of debt or equity securities of the Company or a substantial portion of the Company’s business or assets from any third parties or any other signatory to this Term Sheet other than consistent with securing other investors that have been mutually agreed to by Company and the lead investor, for a period of 30 days from the date of the Company’s signature below. This Term Sheet will expire if not accepted by December __, 2010. Agreed and Accepted 7