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Term Sheet Series A
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Prepared for:
[Investors]

Prepared by:
[Sender Company]
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Term Sheet Series A

Terms for Proposed Private Placement of Series A Preferred Stock of

[Sender Company]

Date: [Date]
1. Issuer Company: [Sender Company], a [State] Corporation (the “Company”)
2. Type of Security: Series A Preferred Stock (the “Series A”).
3. Investors
  • [List Investors Name]
4. Investment Amount
  • $[0.00] from [Investor Name] ("Lead Investor")
  • $[0.00] from other investors

Convertible notes and safes (“Convertibles”) convert on their terms into shadow series of preferred stock (together with the Series A, the “Preferred Stock”).
5. Closing: Sale of the Series A Preferred (the “Closing”) is anticipated to take place on [Date]
6. Price: $[0.00] per share (the "Purchase Price")
7. Valuation: The Purchase Price represents a fully-diluted pre-money valuation of $[0.00] and a fully-diluted post-money valuation of $[0.00].
8. Founders: [Founder Name]
9. Board of Directors: At the Closing, the Board shall consist of [Number of Members] members comprised of:
  • [Name], the representative designated by [Lead Investor name], as the Lead Investor.
  • [Name], the representative designated by the remaining investors.
  • [Name], the representative designated by the Founders.
These terms do not constitute a contract and are not legally binding upon the parties, except for the clause of “Confidentiality”, "Governing Law", and "No Shop" which are explicitly agreed by the Investors and the Company to be binding upon execution of this term sheet.

Terms and Conditions

1. Closing Conditions

The following are the closing conditions as per the Term Sheet.
  1. Satisfactory completion of confirmatory due diligence.
  1. Negotiation of customary legal documentation in compliance with this term sheet (including a simplification of the Company’s by-laws, to the extent relevant).
  1. Approval of the proposed investment/definitive agreements by the New Investors’ respective investment committees or other competent bodies, if applicable.
  1. Receipt by the Investors of anti-money laundering documents reasonably satisfactory to them.
  1. Receipt of waiver of any existing pre-emptive rights and/or other necessary approvals and consents.
  1. No unanticipated material adverse events.

2. Capitalization

The following table shows the Company's capital structure:

Shares
Percentage
Common Stock Outstanding
[Number]
[0.00] %
Employee Stock Options

 
Reserved Pool
[Number]
[0.00]
Series A Preferred Outstanding


[Lead Investor Name]
[Number]
[0.00]
[Other Investors]
[Number]
[0.00]
Fully Diluted Shares
[Number]
[0.00]
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3. Dividends

Series A Preferred stockholders shall be allowed to receive non-cumulative dividends in preference to any dividend on the Common Stock at the rate of [0.00]% of the Purchase Price per annum, when and as declared by the Board of Directors.

[0.00]% non-cumulative dividend preference, when and as declared by the Board of Directors; pro-rata participation in any Common Stock dividends.

4. Liquidation Preference

  1. In the event of a liquidation, dissolution, winding up, merger, sale, or other disposition of the Company, the holders of the Series A Preferred shall be entitled to receive in preference to the holders of the Common Stock a per-share amount equal to the [Number of times, eg: 1x/2x] Purchase Price plus any declared but unpaid dividends (the “Liquidation Preference”)
  1. Thereafter, the remaining proceeds (if any) shall be distributed pro-rata to the holders of Common Stock and Series A Preferred on a common equivalent basis.

5. Preferred Stock Conversion

Series A Preferred stockholders shall have the right to convert their Series A Preferred, at any time, into shares of Common Stock. The initial conversion rate shall be [00] : [00], subject to adjustment as provided in "Automatic Conversion."

6. Automatic Conversion

Upon the closing of a firmly underwritten public offering of shares of Common Stock of the Company, the Series A Preferred shall automatically convert into Common Stock at a per-share price of Series A Preferred Stock not less than [Number of Times] times the Purchase Price and for a total offering of not less than $ [0.00] (a “Qualified IPO”). Any or all of the Series A Preferred shall convert into Common Stock, at the then applicable conversion price in the event that the holders of at least a majority of the outstanding Series A Preferred consent to such conversion.

7. Antidilution Provision

The conversion price of the Series A Preferred will be subject to a weighted-average adjustment to reduce dilution in the event that the Company issues additional equity securities at a price per share less than the applicable conversion price then in effect, subject to the standard and customary exceptions. The conversion price will also be subject to proportional adjustment for stock splits, stock dividends, combinations, recapitalization, and the like.

8. Pre-emptive Rights

  1. The Series A Preferred will not be redeemable consistent with applicable law of the [Country/State].
  1. Voting: The Series A Preferred shall carry the same number of votes as the other shares of the Company issued and outstanding consistent with applicable law of the [Country/State], except that shares held by the same shareholders for at least [Number of Years] years following the Closing shall enjoy double voting rights.
  1. A shareholders’ agreement (the “Agreement”) will be entered into on the Closing date among the Founders, the Investors owning more than [0.00] % of the share capital, and the New Investors, for a term of [Number of Years] years renewable.

9. Redemption

At the election of the holders of at least majority of the Series A Preferred, the Company shall redeem the outstanding Series A Preferred in [Number of Installments] annual installments beginning on the [Time Period] anniversary of the Closing. Such redemptions shall be at a purchase price equal to the [Number of Times] Purchase Price plus declared and unpaid dividends.

10. Right to Participate Pro-Rata in Future Rounds

Series A Preferred Stockholders shall have a pro-rata right as per on their fully diluted equity interest percentage in the Company, with an under subscription right up to the total number of shares being offered, to participate in any future issuances of equity securities by the Company.

11. Right to Refusal

The Company first and Investors second (to the extent assigned by the Board of Directors) shall have a right of first refusal with respect to any shares of the capital stock of the Company proposed to be transferred by all current and future holders of greater than 1% of Company Common Stock.

12. Drag-Along Rights

Founders, Investors, and [Mention the percentage, if any] Stockholders required to vote for a Company Sale approved by (i) the Board, (ii) the Preferred Majority, (iii) a majority of Common Stock (excluding shares of Common Stock issuable or issued upon conversion of the Preferred Stock) (the "Common Majority"), subject to standard exceptions.

13. Information and Audit Rights

The Investors reserve the right to the following information as long as the investment survives:
  1. Unaudited annual financial statements within [Number of Days] and audited annual financial statements within [Number of Days] of financial year closing.
  1. Unaudited Quarterly (and year-to-date) financial statements within [Number of Days] of the quarter ending.
  1. Monthly Management Accounts.
  1. Annual Operating Plans for the following financial year [Number of Days] before the start of a new financial year.
  1. Information regarding appointment or resignation of any significant member within [Number of Days] from the date of the appointment or resignation.
  1. In addition to the above, the Investor shall also reserve standard inspection rights.

These provisions shall be terminated upon a Qualified IPO.

14. Options and Vesting

All stock and options held by founders, management, and employees shall vest over a [Time Period]-year period. The stock currently held by Founders will be considered to be [0.00]% vested as of the Closing of this financing with the balance to vest in equal monthly installments over [Time Period] years. All others shall vest in equal installments over [Time Period] years with a [Number of Years]-year(s) cliff at the beginning of the vesting term.

15. No Shop Clause

For [Number of Days], the Company will not solicit, initiate, encourage, or accept any offers, proposals, or negotiations, for the acquisition of Company capital Stock (other than equity compensation for service providers), or of all or any substantial portion of Company assets.

16. Confidentiality

The Company and all related members including the Founders, the Seed Investors, the Board and other employees and officers, attendees of the Term Sheet shall hold the term sheet and all related discussions and decisions in strict confidence and may not divulge such information to any party without the prior written approval of the Founders.

17. Governing Law

This summary of terms shall be governed in all respects by the laws of the [State].

Acceptance and Signature

IN WITNESS THEREOF, this Term Sheet is duly signed by the authorized representatives of the Parties as set forth below:
[Sender Company]

[Investor Name]
Signature
Assign signer 1
Name
Assign signer 1
Date
Assign signer 1
Signature
Assign signer 2
Name
Assign signer 2
Date
Assign signer 2
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THANK YOU

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