"FFI - Plain Preferred Term Sheet"
TheFunded Founder Institute – Plain Preferred Term Sheet [NAME OF ISSUER] MEMORANDUM OF TERMS1 [INSERT DATE] This Memorandum of Terms represents only the current thinking of the parties with respect to certain of the major issues relating to the proposed private offering and does not constitute a legally binding agreement. This Memorandum of Terms does not constitute an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted. THE OFFERING Issuer: Securities: Valuation of the Company: Amount of the offering: Number of shares: Price per share: Investor(s): Capitalization: Anticipated closing date: [__________], a [Delaware] corporation (the “Company”) Series A Preferred Stock (the “Preferred”) $[__________] pre-money $[__________] [__________] shares $[__________] [__________] or its affiliated entities and other investors acceptable to the Company. See attached capitalization table for the Company’s pre-financing capitalization and pro forma capitalization. Initial closing on or before [__________], with additional closings within 120 days. TERMS OF THE PREFERRED Dividends: Liquidation preference: Non-cumulative dividends at an annual rate of 8% of original Preferred price (if declared by board). 1x liquidation preference, non-participating. 1 This sample Memorandum of Terms was designed to be used in conjunction with standard Founder Institute charter documents, which include Class A Common Stock and Class F Common Stock. This sample Memorandum of Terms will need to be appropriately customized for each end-user’s application, including but not limited to replacing references to “Class A Common Stock” and “Class F Common Stock” to “Common Stock,” if appropriate. TheFunded Founder Institute – Plain Preferred Term Sheet Redemption rights: Conversion: None. 1:1 conversion to Class A Common Stock (subject to anti-dilution adjustments) at any time at the option of the holder. Automatic conversion upon (i) closing of a firmly underwritten public offering, or (ii) consent of at least 50% of the outstanding Preferred. Broad based weighted average, subject to customary exceptions, including shares issued in connection with: (i) plans, agreements or similar arrangements for employees, consultants or directors approved by the board; (ii) a registered public offering; (iii) an acquisition or joint venture approved by the board; (iv) debt financing or commercial transactions approved by the board; (v) a settlement approved by the board; (vi) sponsored research, collaboration, technology license, development, OEM, marketing or similar arrangements or strategic partnerships approved by the board; and (vii) the provision of goods or services pursuant to transactions approved by the board. General: Preferred will vote (on an as-converted basis) with the Common Stock, except as provided herein or required by law. Directors: So long as [__________] shares2 of the Preferred are outstanding (i) the Preferred will be entitled to elect one director; (ii) the Class F Common Stock will be entitled to elect the Class F Director (as defined in the Company’s certificate of incorporation); and (iii) the remaining director(s) will be elected by the Preferred and Class F Common Stock voting together. Protective provisions: So long as [__________] shares3 of the Preferred are outstanding, consent of at least 50% of the then-outstanding Preferred will be required to (i) alter the certificate of incorporation if it would adversely alter the rights of the Preferred; (ii) change the authorized number of Preferred Stock; (iii) authorize or issue any senior or pari passu security; (iv) approve a merger, asset sale or other corporate reorganization or acquisition; (v) repurchase Common Stock, other than upon termination of a consultant, director or employee; (vi) declare or pay any dividend or distribution on the Preferred Stock or Common Stock; or (vii) liquidate or dissolve. Anti-dilution: Voting rights: 2 3 Equal to 25% of the aggregate number of Preferred shares issued in the financing. Equal to 25% of the aggregate number of Preferred shares issued in the financing. TheFunded Founder Institute – Plain Preferred Term Sheet INVESTOR RIGHTS Information rights: Holders of Preferred will receive unaudited annual and quarterly financials and annual business plan until an IPO or change of control. Demand registration: Two demand rights after the earlier of (i) five years following the financing or (ii) 180 days following the IPO. “Piggyback” registration: Customary “piggyback” rights on Company registrations, subject to underwriter cutback. S-3 rights: Two per year (if available), with minimum offering price requirement of $1,000,000. Termination: These rights expire on the earlier of (i) the date on which all shares may be sold by the holder under Rule 144 during any 90-day period or (ii) three years after an IPO. Market stand-off: 180 days after an IPO with booster shot. Preemptive rights: Holders of Preferred will have a right to purchase pro rata share of any offering of new securities by the Company, subject to customary exceptions. Pro rata share will be determined based on the Company’s fully-diluted capitalization (on an as-converted and asexercised basis). Right will terminate on an IPO or change of control. The Company will have a right of first refusal on transfer of Company shares by [insert name of Founder(s)] (the “Founders”). If the Company does not exercise this right, holders of Preferred will have a right of first refusal and a co-sale right, subject to customary exceptions. Customary voting agreement including provisions agreeing to elect the following individuals to the board (i) one representative designated by [____________] (the “Preferred Director”); (ii) one representative designated by the holders of Class F Common Stock as the Class F Director; and (iii) one representative mutually agreeable to the Preferred Director and the Class F Director. Registration rights: Right of first refusal and co-sale agreement: Voting agreement: TheFunded Founder Institute – Plain Preferred Term Sheet OTHER MATTERS Option pool: The number of shares of Class A Common Stock reserved for issuance under the Company’s equity incentive plan will be increased to a new total of [_________] shares.4 Upon a Change of Control, all then-unvested shares of Class F Common Stock purchased by each Founder shall immediately vest and become exercisable. A “Change of Control” shall mean (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Company), unless the Company’s stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or (ii) a sale of all or substantially all of the assets of the Company. Expiration date: These terms are valid until, and will expire on, [___________].5 (Signature page follows) Founder Vesting: 4 Total number of shares reserved under the option pool to be no greater than 20% of the fully-diluted capitalization of the Company post-money. 5 30 days after the date first set forth above. TheFunded Founder Institute – Plain Preferred Term Sheet This Memorandum of Terms may be executed in counterparts, which together will constitute one document. Facsimile signatures shall have the same legal effect as original signatures. [INSERT COMPANY NAME] [INSERT NAME OF INVESTOR] Signature Signature Print name Print name Print title Print title Date Date TheFunded Founder Institute - Notice This sample Memorandum of Terms has been prepared by Wilson Sonsini Goodrich & Rosati for informational purposes only and does not constitute advertising, a solicitation, or legal advice. 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Further, Wilson Sonsini Goodrich & Rosati does not necessarily endorse, and is not responsible for, any third-party content that may be accessed through this website. TheFunded Founder Institute – Plain Preferred Term Sheet EXHIBIT: CAPITALIZATION TABLE