This sample document is the work product of a coalition of attorneys who specialize in venture capital financings working under the auspices of the NVCA See the NVCA website for a list of the Working Group members This document is intended to serve as a starting point only and should be tailored to meet your specific requirements This document should not be construed as legal advice for any particular facts or circumstances Note that this sample presents an array of often mutually exclusive options with respect to particular deal provisions TERM SHEET Last updated on January 7 2004 Preliminary Notes This Term Sheet maps to the NVCA model documents and for convenience the provisions are grouped according to the particular model document in which they may be found Although this Term Sheet is perhaps somewhat longer than a typical VC Term Sheet the aim is to provide a level of detail that makes the Term Sheet useful as both a road map for the document drafters and as a reference source for the business people to quickly find deal terms without the necessity of having to consult the legal documents assuming of course there have been no changes to the material deal terms prior to execution of the final documents Last updated on January 7 2004 2 TERM SHEET FOR SERIES A PREFERRED STOCK FINANCING OF INSERT COMPANY NAME INC 200 This Term Sheet summarizes the principal terms of the Series A Preferred Stock Financing of Inc a Delaware corporation the Company In consideration of the time and expense devoted and to be devoted by the Investors with respect to this investment the No Shop Confidentiality and Counsel and Expenses provisions of this Term Sheet shall be binding obligations of the Company whether or not the financing is consummated No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties This Term Sheet is not a commitment to invest and is conditioned on the completion of due diligence legal review and documentation that is satisfactory to the Investors This Term Sheet shall be governed in all respects by the laws of the State of Delaware Offering Terms Closing Date As soon as practicable following the Company s acceptance of this Term Sheet and satisfaction of the Conditions to Closing the Closing provide for multiple closings if applicable Investors Investor No 1 shares Investor No 2 shares as well other investors mutually agreed upon by Investors and the Company Amount Raised including from the conversion of principal and interest on bridge notes 1 Price Per Share per share based on the capitalization of the Company set forth below the Original Purchase Price Pre Money Valuation The Original Purchase Price is based upon a fully diluted pre money valuation of and a fully diluted post money valuation of including an employee pool representing of the fully diluted post money capitalization Capitalization The Company s capital structure before and after the Closing is set forth below Pre Financing 1 Post Financing Modify this provision to account for staged investments or investments dependent on the achievement of milestones by the Company Last updated on January 7 2004 3 Security Common Founders of Shares of Shares Common Employee Stock Pool Issued Unissued Common Warrants Series A Preferred Total CHARTER2 Dividends Alternative 1 Dividends will be paid on the Series A Preferred on an as converted basis when as and if paid on the Common Stock Alternative 2 Non cumulative dividends will be paid on the Series A Preferred in an amount equal to per share of Series A Preferred when and if declared by the Board Alternative 3 The Series A Preferred will carry an annual cumulative dividend compounded annually payable upon a liquidation or redemption For any other dividends or distributions participation with Common Stock on an as converted basis 3 2 The Charter is a public document filed with the Delaware Secretary of State that establishes all of the rights preferences privileges and restrictions of the Preferred Stock Note that if the Preferred Stock does not have rights preferences and privileges materially superior to the Common Stock then after Closing the Company cannot defensibly grant Common Stock options priced at a discount to the Preferred Stock 3 In some cases accrued and unpaid dividends are payable on conversion as well as upon a liquidation event Most typically however dividends are not paid if the preferred is converted Another alternative is to give the Company the option to pay accrued and unpaid dividends in cash or in common shares valued at fair market value The latter are referred to as PIK payment in kind dividends Last updated on January 7 2004 4 Liquidation Preference In the event of any liquidation dissolution or winding up of the Company the proceeds shall be paid as follows Alternative 1 non participating Preferred Stock First pay one times the Original Purchase Price plus accrued dividends plus declared and unpaid dividends on each share of Series A Preferred The balance of any proceeds shall be distributed to holders of Common Stock Alternative 2 full participating Preferred Stock First pay one times the Original Purchase Price plus accrued dividends plus declared and unpaid dividends on each share of Series A Preferred Thereafter the Series A Preferred participates with the Common Stock on an as converted basis Alternative 3 cap on Preferred Stock participation rights First pay one times the Original Purchase Price plus accrued dividends plus declared and unpaid dividends on each share of Series A Preferred Thereafter Series A Preferred participates with Common Stock on an as converted basis until the holders of Series A Preferred receive an aggregate of times the Original Purchase Price A merger or consolidation other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation and a sale lease transfer or other disposition of all or substantially all of the assets of the Company will be treated as a liquidation event a Deemed Liquidation Event thereby triggering payment of the liquidation preferences described above unless the holders of of the Series A Preferred elect otherwise Voting Rights The Series A Preferred Stock shall vote together with the Common Stock on an as converted basis and not as a separate class except i the Series A Preferred as a class shall be entitled to elect members of the Board the
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