Series B Preferred - Sample Term Sheet
September 26, 200X
THE TERMS SET FORTH BELOW ARE SOLELY FOR THE PURPOSE OF
OUTLINING THOSE TERMS PURSUANT TO WHICH A DEFINITIVE
AGREEMENT MAY BE ENTERED INTO AND DO NOT AT THIS TIME
CONSTITUTE A BINDING CONTRACT, EXCEPT THAT BY ACCEPTING THESE
TERMS THE COMPANY AGREES THAT FOR A PERIOD OF 30 DAYS
FOLLOWING THE DATE OF SIGNATURE, PROVIDED THAT THE PARTIES
CONTINUE TO NEGOTIATE TO CONCLUDE AN INVESTMENT, THEY WILL
NOT NEGOTIATE OR ENTER INTO DISCUSSION WITH ANY OTHER
INVESTORS OR GROUP OF INVESTORS REGARDING THIS "SERIES X" ROUND
OF INVESTMENT. AN INVESTMENT IN THE COMPANY IS CONTINGENT
UPON, AMONG OTHER THINGS, COMPLETION OF DUE DILIGENCE AND THE
NEGOTIATION AND EXECUTION OF A SATISFACTORY STOCK PURCHASE
AGREEMENT.
I. Issuer: Newco Inc.
(Hereinafter referred to as the "Company").
II. Investor: Venture Capital Partners, LLC or its affiliates ("VC") and other
investors acceptable to the Company and VC (collectively the "Investors")
III. Security: Series X Preferred Stock ("Preferred")
IV. Amount of Investment: $[ ]
V. Valuation: Pre money valuation is $[ ]
VI. Post-Investment Ownership:
The company would be capitalized such that post investment ownership at
closing would be as follows:
VC [ ]%
Founders, Management & Other [ ]%
Option Pool [ ]%
VII. Closing Date:
Closing for the investment would be on or before _________________,
provided that all requirements for the closing have been met or expressly
waived in writing by the Investors.
VIII. Board Representation:
The Board of Directors will include a total of five (5) people. Holders of
Series X Convertible Preferred Stock are entitled to two (2)
representatives on the Company's Board of Directors. Common
Shareholders will have three (3) designees to the board, one of which must
be the CEO of the Company. Board of Directors meetings would be
scheduled on a monthly basis until such time as the Board of Directors
votes to schedule them less frequently.
VC’s representative would be appointed to all Board Committees
(including the compensation committee), each of which would consist of
three (3) members. The Company would reimburse each Director's
reasonable expenses incurred in attending the board meetings or any other
activities (e.g., meetings, trade shows) which are required and/or requested
and that involve expenses.
IX. Proprietary Information and
Inventions Agreement:
Each officer, director, and employee of the Company shall have entered
into a proprietary information and inventions agreement in a form
reasonably acceptable to the Company and the Investors. Each Founder
and other key technical employee shall have executed an assignment of
inventions acceptable to the Company and Investors.
DESCRIPTION OF SERIES B PREFERRED
X. Dividends:
An [ ]% annual dividend would accrue as of the closing date to holders of
the Series X Convertible Preferred. Accrued dividends would be payable
(a) if, as and when determined by the Company's Board of Directors, (b)
upon the liquidation or winding up of the company, or (c) upon
redemption of the Series X Preferred. Upon an automatic conversion,
accrued but unpaid dividends would be forfeited. No dividends may be
declared and/or paid on the Common Stock until all dividends have been
paid in full on the Convertible Preferred Stock. The Convertible Preferred
Stock would also participate pari passu in any dividends declared on
Common Stock. Dividends will cease to accrue in the event that the
Investor converts its holdings to Common Stock.
XI. Liquidation Preference:
In the event of any liquidation or winding up of the Company, the Series
X Preferred will be entitled to receive in preference to the holders of
Common Stock an amount per share equal to their Original Purchase Price
plus all accrued but unpaid dividends (if any).
The Series X Preferred will be participating so that after payments of the
Original Purchase Price and all accrued dividends to the Preferred, the
remaining assets shall be distributed pro-rata to all shareholders on a
common equivalent basis.
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 shall be
deemed a liquidation of the Company.
XII. Conversion:
The Preferred will have the right to convert Preferred shares at the option
of the holder, at any time, into shares of Common Stock at an initial
conversion rate of 1-to-1. The conversion rate shall be subject from time
to time to anti-dilution adjustments as described below.
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