Terms & Conditions
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OUTLINE SUMMARY STANDARD TERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING
| The standard Term Sheet for a Series A Preferred Stock Financing will include the following terms, plus others as deemed appropriate for the particular investment |
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| Offering Terms | |
| Company/Issuer: | [Candidate Portfolio Company] (“Company”) |
| Investors: | ___________________ (the “Lead Investor”), and other investors satisfactory to the Lead Investor and the Company. (Collectively the “Series A Investors”). |
| Key Executives: | Key Founders and executives to be specified |
| Amount Raised: | No less than $_______, including approx. $_________ from the Lead Investor |
| [Conversion to Delaware Corporation] | [If appropriate, add provision for conversion of LLC or non-DE corporation to DE corporation prior to -Closing.] |
| Pre-Money Valuation: | Agreed “Pre-Money Value” to be specified, to be determined on “broad-based’ fully diluted Common Stock equivalents outstanding at Closing (e.g., reserved and granted options, all warrants and convertible notes). [Note: Prior to the conduct of some level of due diligence, NWA will likely be able to discuss Pre-Money Value only in terms of a range of possible values.] |
| Capitalization: | Pro Forma Cap Table to be attached. Minimum post-closing ownership percentage for Series A to be specified [based on Invested Dollars in Series A divided by sum of Pre-Money Value plus Invested Dollars]. |
| Option Pool (Equity Incentive Plan); | The minimum number of shares to be included in the Option Plan will be specified (and such number will be included in the Pre-Money Cap Table). |
| Mandatory Conversion of Debt and Deferred Payments: | Generally, all existing bridge loans, other debt and deferred payments will be converted to equity at the Closing and included in the Pre-Money Cap Table. |
| Funding Schedule: | Provision may be made for milestone funding. |
| Dividends: | Generally, 8% cumulative dividend, with PIK option |
| Liquidation Preference: | Generally, a 1X to 2X participation preference, plus a pro rata share of remaining proceeds (sharing with the Common Stock), with provision for Deemed Liquidation Events to trigger payment obligation. |
| Voting Rights and Board Composition: | Series A Preferred votes together with Common Stock on as-converted basis. Generally, 2 Series A Directors in a 5-member Board, including one independent Director |
| Protective Provisions: | Approval of the Series A Preferred required for a variety of corporate actions, including new equity raises, sale or merger, joint ventures, borrowings, etc. |
| Conversion: | Converts to Common Stock, initially 1:1, at the option of the holders, with mandatory conversion upon a significant IPO |
| Anti-dilution Provisions: | Standard “Anti-Dilution” protection against future sales at a lower price per share:“:Full ratchet” for first [2] years“Weighted Average” thereafter |
| Redemption Rights: | Redeemable at the option of the holders after 5 years at the greater of original purchase price plus accrued dividends or Fair Market Value |
| Basic Transaction Documents[Note: NWA generally utilizes the industry-standard investment documentation developed for the National Venture Capital Association. The current forms are available at www.nvca.org ] | |
| Stock Purchase Agreement: | Standard representations and warranties by the Company and the Key Executives.Standard conditions to closing, plus appropriate special conditions.Company to pay expenses of transaction, including fees of Investor counsel |
| Investor Rights Agreement | Standard registration rights, including demand registrationsStandard “lock-up” provisionsCustomary “Management Rights Letter”Monthly, quarterly and annual financial statement, with annual audit and quarterly Cap TableReasonable access to facilities and information upon requestPro rata right to participate in future equity offerings, subject to standard carve-outsCertain Board actions to require approval of Series A Directors, including executive compensation and equity incentives |
| Employment Agreements: | Key Executives to have employment agreements, generally “at will” with specified severance benefits |
| Vesting of Key Executives’ Stock: | Generally, the existing equity of the Key Executives will be subjected to additional vesting for 2 years |
| Non-Competition and Non-Solicitation and Agreements; Non-Disclosure and Developments Agreements: | All key employees to sign standard 2-year non-competes and standard non-disclosure agreements, including absolute assignment of all patent and intellectual property rights |
| Board Matters: | The Board will meet monthly for the first 18 months. Company will provide D&O insurance and separate indemnity agreements. |
| Employee Stock Options: | Generally, all unvested employee options to vest as follows: 25% after one year, with remaining vesting monthly over next 36 months. |
| Key Person Insurance: | Company to acquire life insurance on the Key Executives ($1-2 Million each) with the proceeds payable to the Company. |
| Right of First Refusal/Co-Sale and Voting Agreement | Standard first refusal rights on Common Stock of Key Executives, first to the Company, then to the Series A holders.Standard tag-along and “drag-along” rights in favor of Series A holdersAgreement of Common Stock holders and Series A holders to vote for the agreed Board composition to be spelled out“Unlocking” provision requiring the Company to accept bona fide acquisition proposal, at or above 5X in first 2 years, and at any price thereafter, if so elected by the Series A holders; or buy out the Series A Preferred at same price |
| Other Matters | |
| Stipulated Activities: | All Key Executives to be full-time. |
| Management Salaries and Benefits: | Salaries and benefits of Company executives and officers will be subject to approval by the Compensation Committee. |
| No Shop/Confidentiality: | Term Sheet to be confidential45-day “No Shop”Agreement to pay liquidated damages of $100,000 if violate No Shop |
| Final Approval by NWA Investor: | Final terms of deal and transaction documents subject to approval of the Investment Committee of NWA |
| Attachments to Term Sheet | Attachment A — Pro Forma Cap TableAttachment B — Specified debt and deferred payments to be converted to equity |
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