Term Sheet for Potential Investment

Term Sheet for Potential Investment	$25.00
This is a very detailed Term Sheet for a prospective Preferred Stock investment in a private company, coupled with a strategic agreement and warrants. This tends to be very pro-investor oriented and is more detailed than most term sheets. Format: Microsoft Word

[Name of Company]

TERM SHEET FOR POTENTIAL INVESTMENT

Series [ ] Preferred Stock

Confidential

This term sheet summarizes the principal terms with respect to a potential private placement of equity securities of (the “Company”) by a group of investors (the “Investors”) led by _________________________ (“Strategic Investor”). This term sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation except as provided under “Confidentiality,” “Exclusivity”, “Expenses”, “Due Diligence” and “No Other Agreements” below. No other legally binding obligations will be created, implied, or inferred until a document in final form entitled “Stock Purchase Agreement,” is executed and delivered by all parties. Without limiting the generality of the foregoing, it is the parties intent that, until that event, no agreement shall exist among them and there shall be no obligations whatsoever based on such things as parol evidence, extended negotiations, “handshakes,” oral understandings, or courses of conduct (including reliance and changes of position), except as provided under “Confidentiality,” “Exclusivity”, “Expenses”, “Due Diligence” and “No Other Agreements” below.

The Company and the investors are discussing a private placement of shares of Preferred Stock on the following terms:

AMOUNT OF INVESTMENT		Approximately $_________to $_________
VALUATION OF THE COMPANY		$_______ pre-money valuation on a fully diluted basis^*
TYPE OF SECURITY		Shares of the Company’s Series __ Preferred Stock (“Series __ Preferred”), convertible into shares of the Company’s Common Stock.
PRICE PER SHARE		$________(“Original Purchase Price”).
	POST-FINANCING CAPITALIZATION			Common Stock Equivalent Number of Shares	(%, fully-diluted)
			Common Stock
			Series A ¹
			Series B ¹
			[Series C ¹]
			[Series D ¹]
			Warrants ²
			Outstanding Options
			Reserved Options³	________	________
			Total		100.00%
			______
			¹ Converts on 1 to 1 basis
			² Consists of ________, _________ and ___________.
			^3/Includes expansion of the Company’s stock option pool by _________ shares.

RIGHTS, PREFERENCES PRIVILEGES AND RESTRICTIONS OF PREFERRED STOCK	(1) Dividend Provisions. The holders of the Preferred will be entitled to receive dividends at the rate of 8% of the Original Purchase Price whenever funds are legally available and when and as declared by the Board. No dividend shall be paid on the Common at a rate greater than the rate at which dividends are paid on Preferred (based on the number of shares of Common into which the Preferred is convertible on the date the dividend is declared). Dividends on Preferred will be in preference to dividends paid on the Common. Dividends on the Preferred will be noncumulative.
	(2) Liquidation Preference. In the event of any liquidation or winding up of the Company, the holders of Preferred Stock will be entitled to receive in preference to the holders of Common Stock an amount equal to their original issue prices plus all declared but unpaid dividends (if any). The Preferred Stock will be participating so that after payment of the original issue prices to the holders of Preferred Stock, 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.
	(3) Optional Conversion. The holders of Preferred Stock will have the right to convert Preferred Stock at the option of the holder, at any time, into shares of Common Stock. The Series __ Preferred Stock shall initially be convertible on a 1 for 1 basis. The conversion rate shall be subject from time to time to antidilution adjustments as described below. (4) Automatic Conversion. The Series __ Preferred Stock will be automatically converted into Common upon (i) the closing of an underwritten public offering of shares of Common Stock of the Company at a public offering price per share (prior to underwriting commissions and expenses) that values the Company after the offering of at least $100 million in an offering of not less than $20 million and at a per share price of at least [twice] [three] times the Original Purchase Price, before deduction of underwriting discounts and registration expenses (a “Qualifying IPO”) or (ii) approval of 66-2/3% of outstanding Series __ Preferred Stock.
	(5) Antidilution. Proportional antidilution protection for stock splits, stock dividends, combinations, recapitalizations, etc. The conversion price of the Series __ Preferred Stock shall be subject to adjustment to prevent dilution, on a weighted average basis, in the event that the Company issues additional shares of Common or Common equivalents (other than up to _____ employee shares) at a purchase price less than the conversion price.
	(6) Voting Rights. The holders of Preferred Stock will have a right to that number of votes equal to the number of shares of Common Stock issuable upon conversion of Preferred Stock.
REGISTRATION RIGHTS	(1) Demand Rights: If investors holding at least 30% of Preferred Stock (or Common issued upon conversion of the Preferred Stock or a combination of such Common and Preferred Stock) request that the Company file a Registration Statement for at least 30% of their shares (or any lesser percentage if the anticipated gross receipts from the offering exceed $5,000,000) the Company will use its best efforts to cause such shares to be registered; provided, however, that the Company shall not be obligated to effect any such registration prior to the earlier of (i) [12 months after closing date] [some specific date], or (ii) within one year following the effective date of the Company’s initial public offering. The Company shall not be obligated to effect more than three registrations under these demand right provisions.
	(2) Company Registration: The holders of registration rights shall be entitled to “piggy-back” registration rights on registrations of the Company or on demand registrations of any later round investor subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered pro rata in view of market conditions. Any cutbacks shall first be from any Founder and management shares.
	(3) S-3 Rights: Holders of registration rights shall be entitled to an unlimited number of demand registrations on Form S-3 (if available to the Company) so long as such registration offerings are in excess of $1 million; provided, however, that the Company shall only be required to file three Form S-3 Registration Statements on demand of the holders of Preferred Stock every 12 months.
	(4) Superior Registration Rights: No shareholder of the Company shall be granted registration rights superior to those of the Preferred Stock without the consent of the holders of at least 50% of the Common issued or issuable upon conversion of the Preferred Stock. If superior registration rights are granted, the Company shall grant the same registration rights to the holders of Preferred Stock.
	(5) Expenses: The Company shall bear registration expenses (exclusive of underwriting discounts and commissions) of all demands, piggybacks, and S-3 registrations. The Company will pay the reasonable fees of special counsel to the selling shareholders.
	(6) Transfer of Rights: The registration rights may be transferred provided that the Company is given written notice thereof and provided that the transfer (a) is in connection with a transfer of all securities of the transferor, (b) involves a transfer of at least ________ shares (or the entire original investment position of the transferor), (c) is to constituent partners or members or (d) is to transferees who agree to act through a single representative.
	(7) Termination of Registration Rights: The registration obligations of the Company will terminate on the earlier of five (5) years after the IPO or, with respect to any holder of registration rights who holds less than 1% of the outstanding stock of the Company, at such time as all registrable securities of such holder are freely tradeable immediately in one transaction pursuant to Rule 144.
	(8) Market Standoff: In connection with the IPO, each holder of registration rights will be required not to sell or otherwise dispose of any securities of the Company (except for those securities being registered) for a period of 180 days following the effective date of the registration statement for such offering if so requested by the underwriters of such offering; provided that, all 1% or more holders, all directors and all officers are so bound and provided further that any early release from this standoff provisions shall be pro rata to all holders bound by the market standoff provision.
	(9) Other Provisions: Other provisions shall be contained in the Registration Rights Agreement with respect to registration rights as are reasonable, including cross-indemnification (subject to the provision that under no circumstances shall a selling shareholder’s liability exceed the amount of net proceeds received by such shareholder on sale of his shares), the period of time in which the Registration Statement shall be kept effective, underwriting arrangements, the ability of the Company to delay demand registrations for up to 90 days (S-3 Registrations for up to 60 days) and standard information and inspection rights.

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Term Sheet for Potential Investment is just $25.00 and can be immediately downloaded after purchase.