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MEMORANDUM OF TERMS FOR THE PRIVATE PLACEMENT OF SECURITIES OF XYZ

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MEMORANDUM OF TERMS FOR THE PRIVATE PLACEMENT OF SECURITIES OF XYZ Powered By Docstoc
					                                 MEMORANDUM OF TERMS
                       FOR THE PRIVATE PLACEMENT OF SECURITIES OF
                                        XYZ INC.
THIS TERM SHEET SUMMARIZES THE PRINCIPAL TERMS OF THE PROPOSED FINANCING OF
XYZ INC. (THE “COMPANY”). THIS TERM SHEET IS FOR DISCUSSION PURPOSES ONLY;
THERE IS NO OBLIGATION ON THE PART OF ANY NEGOTIATING PARTY UNTIL A DEFINITIVE
NOTE AGREEMENT IS SIGNED BY ALL PARTIES. THIS TERM SHEET IS SUBJECT TO THE
SATISFACTORY COMPLETION OF DUE DILIGENCE. THIS TERM SHEET DOES NOT CONSTITUTE
EITHER AN OFFER TO SELL OR AN OFFER TO PURCHASE SECURITIES.

A. Amount:                          Up to $500,000

B. Interest Rate:                   4.90% per annum

C. Closing:                         Initial Closing will occur on or before July__, 2009.
                                    Subsequent Closings (no minimum) may occur from time
                                    to time after the Initial Closing.

D. Maturity Date                    January __, 2011
E. Conversion:                      If the Company’s next equity financing in an aggregate
                                    amount of at least $[2,000,000] (not including conversion of
                                    the Notes) (the “Next Equity Financing”) takes place on or
                                    before the Maturity Date, principal and, at the Holder's
                                    option, accrued interest shall be converted into (i) the
                                    number of shares of equity securities issued in such Next
                                    Equity Financing equal to the quotient obtained by dividing
                                    (A) the entire principal amount of the Notes plus accrued
                                    interest by (B) the lesser of (x) [80]% of the price per share
                                    of such equity securities, rounded to the nearest whole share
                                    or (y) a price per share assuming a $[3.0] million pre-money
                                    valuation of the Company (based on outstanding securities
                                    and options at the time of conversion, but excluding options
                                    available but not granted under any option plan).

                                    [Upon a (a) sale of substantially all the assets of the
                                    Company at any time prior to the Next Equity Financing; or
                                    (b) a merger, sale or transfer of over fifty percent (50%) of
                                    the outstanding securities of the Company at any time prior
                                    to the Next Equity Financing, or if a Next Equity Financing
                                    does not occur prior to the Maturity Date, then at the option
                                    of the Holder, principal and accrued interest under the Notes
                                    will convert into a newly created class of shares of Series A
                                    Preferred Securities on the terms attached hereto as Exhibit
                                    A, assuming a $[3.0] million pre-money valuation of the

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                       Company (based on outstanding securities and options at the
                       time of conversion, but excluding options available but not
                       granted under any option plan). ]




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1-417044 JK7/A68
                                          Exhibit A

                                          XYZ INC.

                            Terms of Series A Preferred Securities


Rights, Preferences and           Liquidation Preference: In the event of any liquidation,
Restrictions of Preferred         dissolution or winding up of the Company, the holders of
Securities:                       Series A Preferred Securities will be entitled to receive in
                                  preference to the holders of Common Securities, the
                                  amount of the Purchase Price per share plus declared and
                                  unpaid dividends, if any. Thereafter, the remaining assets
                                  of the Company will be distributed ratably to the holders of
                                  Common Securities.       A sale, conveyance or other
                                  disposition of all or substantially all of the property or
                                  business of the Company, or a merger or consolidation
                                  with or into any other corporation, other than (i) a
                                  consolidation with a wholly-owned subsidiary of the
                                  Company; (ii) a merger effected exclusively to change the
                                  domicile of the Company, or (iii) an equity financing in
                                  which the Company is the surviving corporation, will be
                                  deemed to be a liquidation for purposes of the liquidation
                                  preference.

                                  Redemption: The Series A Preferred Securities will not
                                  be redeemable.

                                  Voluntary Conversion:          Each holder of Series A
                                  Preferred will have the right, at the option of the holder at
                                  any time, to convert shares of Series A Preferred into
                                  shares of Common Securities at an initial conversion ratio
                                  of one-to-one.

                                  Automatic Conversion: The Series A Preferred will be
                                  automatically converted into Common Securities, at the
                                  then applicable conversion rate, in the event of either
                                  (i) the election of holders of a majority of the then
                                  outstanding Preferred Securities, voting together as a class,
                                  or (ii) the closing of an underwritten initial public offering
                                  of the Company’s Common Securities pursuant to a
                                  Registration Statement under the Securities Act of 1933, as
                                  amended (an “IPO”).


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  OHS West:260601760.1
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                         Voting Rights: The holder of a share of Series A
                         Preferred will be entitled to that number of votes on all
                         matters presented to the holders of voting securities equal
                         to the number of shares of Common Securities then
                         issuable upon conversion of such share of Series A
                         Preferred, and will vote together with the Common
                         Securities on all matters (except as otherwise may be
                         required by law).

Purchase Agreement:      The sale of the Series A Preferred will be made pursuant to
                         a purchase agreement reasonably acceptable to the
                         Company and the Investors, which agreement will contain,
                         among other things, representations and warranties of the
                         Company only with respect to due authorization,
                         compliance with laws, capitalization, intellectual property
                         and litigation, appropriate representations and warranties
                         of the Investors, including the status of each Investor as
                         “accredited” under US securities laws, covenants of the
                         Company reflecting the provisions set forth in this term
                         sheet, and appropriate conditions to closing which will
                         include, among other things, qualification of the shares to
                         be sold under applicable Blue Sky laws, and the filing of
                         the Amended and Restated Charter.

Covenants:               If the investors in the next round of equity financing, if
                         any, negotiate more favorable terms with respect to any
                         registration rights, co-sale rights, information rights, rights
                         of first offer or voting rights with respect to the series of
                         Preferred Securities sold in such financing, the Company
                         will use its best efforts to append the rights of the Series A
                         Preferred Securities so as to grant the holders of Series A
                         Preferred Securities any such rights, which will be on
                         parity with the shares issued in such round of financing.




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  OHS West:260601760.1
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Description: Finance companies may use equity financing rather than debt financing, or both. For equity financing company will sell new common shares for cash. Holders to become half owner of the company shares, share the company's operational risk, profit-sharing.