This is a document that outlines a potential agreement between an investor and a company. The investor agrees to invest private equity in the company in return for preferred stock. This document does not create a binding agreement between the parties. Rather, this document sets forth the terms that are already agreed upon and shows the parties good faith intent to enter into a binding agreement. This document can be used by small businesses or other entities that want to memorialize agreed upon terms with a potential investor.
This is a document that outlines a potential agreement between an investor and a company. The investor agrees to invest private equity in the company in return for preferred stock. This document does not create a binding agreement between the parties. Rather, this document sets forth the terms that are already agreed upon and shows the parties good faith intent to enter into a binding agreement. This document can be used by small businesses or other entities that want to memorialize agreed upon terms with a potential investor. © C o p TERM SHEET FOR PRIVATE EQUITY FINANCING y r i Issuance _____________(“Investor”) shall purchase g _____________ shares of Preferred Convertible Preferred h Stock ("Preferred Stock") to be issued by _____________ t (the "Company") at a price per share of $______ (the "Purchase Price"). In addition, Investor acknowledges that B other investors will purchase at least _____________ ( ) i shares but not more than _____________ ( ) shares of z Preferred Stock at the Purchase Price. T r The Preferred Stock shall be convertible on a one-for-one e exchange basis (adjusted for future stock splits) into e common stock of the Company ("Common Stock") at any . time at the option of the stock holder. 2 The Purchase Price shall be equivalent to a pre-investment 0 valuation of the Company of $_____. The calculation is 0 based on ____ ( ) shares of Common Stock. If the number 6 of shares issued increases before the close of this . transaction, the price per share for Preferred Stock will be reduced so as to maintain the pre-investment valuation of A the Company. l l Use of Proceeds The funds raised from the sale of Preferred Stock shall be used for working capital purposes. r i Dividend The Preferred Stock is entitled receive to an annual g $______ per share dividend distribution, in all cases h payable when and if such distribution is declared by the t Board of Directors. In the event of a dividend distribution, s Preferred Stock holders shall receive such distribution prior to any payment on Common Stock. Dividends are not r cumulative. e s Pre-emptive Rights Preferred Stock shall have the right to participate in future e rounds of equity financing based upon their pro-rata, if- r converted, ownership of the Company. v e Voting Rights The Preferred Stock shall have the right to vote with the d Common Stock on an as-if-converted basis. . Liquidation Preference The Preferred Stock shall have a liquidation preference. P The proceeds of a merger, sale or liquidation will be paid r first to the Preferred Stock and shall include an additional o t e © Copyright 2013 Docstoc Inc. 2 c t e ____ % return, compounded annually, calculated based on the total amount invested. Upon completion of this round of funding, the additional ____ % return element will expire and will not be offered in any subsequent rounds of funding. Automatic Conversion The Preferred Stock shall be converted automatically into Common Stock at the applicable conversion rate (1:1 assuming no stock splits) in the event of a public offering at a total offering of not less than $______ and at a per share public offering price of no less than three times the Purchase Price per share, adjusted for splits. Redemption If not previously converted, Preferred Stock shall be redeemed in five equal, consecutive annual installments beginning _____________, 20___. Redemption will be at the Purchase Price plus a ____ % per annum. Anti-Dilution The conversion price of the Preferred Stock will be subject to adjustment to prevent dilution in the event that the Company issues additional shares. The conversion price will be subject to adjustment on a weighted basis which takes into account issuances of additional shares at prices below the applicable conversion price. Preferred Stock shall have weighted average anti-dilution, based on a weighted average formula to be agreed, for all shares purchased as part of this transaction. Rights of First Refusal The Company and the Investors shall have a right of first refusal in respect of any employee's shares proposed to be resold. Rights of First Refusal The Company will timely furnish the Investors with annual, quarterly and monthly financial statements. Representatives of the Investors will have the right to inspect the books of account and records of the Company. Covenants: Preferred Stock shall have the right to approve changes outside normal course of business and any sale, liquidation or merger, any increase in seats on the Board of Directors, and any change election procedures. Board of Directors: The Board of Directors shall consist of ________ ( ) members. The holders of the Preferred Stock shall have the right to designate _________ ( ) directors, the holders of the Common Stock shall have the right to designate © Copyright 2013 Docstoc Inc. 3 ________ ( ) directors, and the remaining _________ ( ) directors will be unaffiliated persons elected by the Common Stock and the Preferred Stock voting as a single class. © Copyright 2013 Docstoc Inc. 4 Stock Restriction Agreement All present holders of Common Stock of the Company who are employees of the Company shall execute a Stock Restriction Agreement with the Company pursuant to which the Company will have the option to buy back at cost a portion of the shares of Common stock held by such person in the event that such stockholder's employment with the Company is terminated prior to expiration of ____________ ( ) months from the date of employment. Information and Inventions Each officer and key employee of the Company designate by the Investors shall enter into a non-competition proprietary by information and inventions agreement in a form reasonably satisfactory to the Investors. Expenses: The Company will bear legal fees and other out-of-pocket expenses of the Investor with respect to this transaction. Closing: The Company and Investor agree to use their best efforts to close the transaction on or about ____________, 20__. The undersigned acknowledge that this term sheet is not a binding agreement, but expresses an agreement covering the principal terms of a private equity financing, and as such, the undersigned shall proceed in good faith to negotiate a final, binding agreement. This proposal remains open until __________, 20___, at which point it shall expire and can no longer be accepted, ______ Company Investor © Copyright 2013 Docstoc Inc. 5
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