NEF: Term Sheets & Investor Rights

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NEF: Term Sheets & Investor Rights
09-17-09

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NEF: Term Sheets & Investor Rights

  1. 1. Term Sheet<br />September 17, 2009<br />The devil’s in the details<br />
  2. 2. Key elements of a Terms Sheet<br />Valuation<br />Liquidation preference<br />Anti-dilution protection<br />Dividends / Redemption rights<br />Board Composition / Governance<br />Participation rights <br />Redemption rights<br />Protective provisions <br />No shop / NDA / Confidentiality <br />9/17/2009<br />New Enterprise Forum<br />2<br />
  3. 3. Overview<br />9/17/2009<br />New Enterprise Forum<br />3<br /> What is a “terms sheet”:<br />What every early stage company dreams of <br />A culmination of a 6 - 9 month investor due-diligence process <br /> A 10-12 page document with proposed investment terms <br />It is not an LOI (letter of intent) <br />Key Concerns for company:<br />Control<br />Valuation & Dilution of ownership<br />Value- add<br />Key Concerns for investors:<br />Risk, risk, risk…Return<br />Management Team<br />Governance: When things go wrong….<br />
  4. 4. Control: Board of Directors<br />Board shall be composed of __ members <br /><ul><li>One representative for the Series A Preferred to be designated by Lead Investor
  5. 5. One representative for common shareholders
  6. 6. CEO
  7. 7. One independent Director, mutually acceptable to all other directors </li></ul>Holders of Preferred and others holding 1% or more of common shall execute a ‘voting agreement’ wherein each agrees to vote shares to ensure the foregoing board composition <br />9/17/2009<br />New Enterprise Forum<br />4<br />
  8. 8. Restrictions & Limitations<br />9/17/2009<br />New Enterprise Forum<br />5<br />So long as shares of Series A Preferred remain outstanding, the Company shall not: <br />Amend its Certificate of Incorporation or Bylaws <br />Reclassify shares into shares with privileges senior to or on parity with the Preferred <br />Increase or decrease the number of authorized shares <br />Effect any sale, lease, assignment, transfer or other conveyance of assets <br />Effect the liquidation of the Company <br />Change the authorized number of directors <br />Make any capital expenditure over $__,000 not contemplated by an annual budget approved by board <br />Incur more than $__,000 of debt <br />Transfer any proprietary technology other than in ordinary course <br />Change the CEO <br />
  9. 9. Voting Rights<br />9/17/2009<br />New Enterprise Forum<br />6<br />One share, one vote <br />Certificate of Incorporation will provide authorized shares <br />Preferred Stock initially converts 1:1 to Common at option of holder <br />Preferred Stock shall vote together with the Common on an as-converted basis, except <br />As long as ___% of Preferred remain outstanding Preferred Stock holders <br />Vote as a class <br />Entitled to elect __ members of the Board <br />
  10. 10. Information Rights<br />9/17/2009<br />New Enterprise Forum<br />7<br />Holders of at least ____ shares (Major Investor) shall receive: <br />Annual budget <br />Audited annual & unaudited quarterly financials <br />Standard inspection & visitation rights <br />
  11. 11. Participation Rights<br />9/17/2009<br />New Enterprise Forum<br />8<br />Holders of Series A Preferred have the right to purchase their pro-rata share of an offering of equity or convertible securities. <br />If holder declines such securities, that portion may be offered to others on terms no less favorable to the company. <br />Company first and Major Investors second have a right of first refusal of stock proposed to be sold by any Key holder. <br />
  12. 12. Registration Rights<br />9/17/2009<br />New Enterprise Forum<br />9<br />Demand Rights: <br />Company files a Registration Statement for at least __% of holders shares <br />Company not obligated to affect more than two registrations under these demand right provisions <br />Company Registration: <br />Unlimited “piggy-back” registration rights<br />S-3 Rights <br />Company shall bear registration expenses<br />
  13. 13. Purchase Agreement<br />9/17/2009<br />New Enterprise Forum<br />10<br />Investment made pursuant to a Stock Purchase Agreement, drafted by investors counsel <br />Reps and warrants of the Company <br />Covenants reflecting provisions set forth in Term Sheet <br />Conditions of closing <br />Investors Rights Agreement <br />Right of First Refusal & Co-Sale Agreement <br />Voting Agreement <br />Amended & Restated Certificate of Incorporation <br />
  14. 14. Closing Date<br />9/17/2009<br />New Enterprise Forum<br />11<br />The parties agree to use reasonable efforts to close financing on or before mm/dd/yr <br />Offer expires on Monday mm/dd/yr<br />Any obligation is subject to standard conditions: <br /><ul><li>Satisfactory completion of due diligence
  15. 15. Qualification of the Series A shares under applicable Blue Sky laws
  16. 16. Filing of Certificate of Incorporation establishing the rights and preferences of the Series A
  17. 17. An opinion of counsel to the Company </li></ul>This summary of terms is not intended as a legally binding commitment <br />
  18. 18. Confidentiality<br />9/17/2009<br />New Enterprise Forum<br />12<br />This Term Sheet and any related correspondence from the investors are to be held in strict confidence and not disclosed to any party other than the Board and legal counsel of the Company. <br />
  19. 19. No Shop<br />9/17/2009<br />New Enterprise Forum<br />13<br />The Company shall not, for a period of __ days after acknowledgement of this Term Sheet by the Company, take any action to solicit an offer from any person or entity other than the Lead and their approved investors. <br />Company may discuss interest from others acceptable to Lead in participating in a financing that results from this summary of terms. <br />
  20. 20. Term Sheet<br />September 17, 2009<br />www.newenterpriseforum.org<br />

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