Series A Term Sheet Markup
Series A Term Sheet Markup
Series A Term Sheet Markup
This Term Sheet summarises the principal terms of the Series A Preference Share Financing of
[insert Company name], a [insert jurisdiction] incorporated company (“Company”). In
consideration of the time and expense devoted and to be devoted by the Investors with respect to this
investment, the Exclusivity/Confidentiality [and Expenses] provisions of this Term Sheet shall be
binding obligations of the Company whether or not the financing is completed (“Binding
Provisions”). 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
conditional on the completion of due diligence, legal review and documentation that is satisfactory to
the Investors. This Term Sheet and the definitive agreements shall be governed in all respects by the
laws of [insert jurisdiction].
INVESTMENT TERMS
Price Per Share: $[_______] per share (based on the capitalisation of the Company set
out below) (“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 share option pool representing
[__]% of the fully-diluted post-money capitalisation).
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Capitalisation: The Company’s capital structure before and after the Closing is set
out in Schedule 1.
ESOP: The Company and the Investors agree that as part of the Closing, an
Employee Share Option Pool (the “ESOP”) will be created
consisting of [ ] ordinary shares (“Ordinary Shares”) (equal to
[ ]% of the postpre-Closing total fully diluted shares), which will be
structured to retain and incentivise senior management.
First pay [one] times the Original Purchase Price [plus accrued
dividends] [plus declared and unpaid dividends] on each Series A
Preference Share (or, if greater, the amount that the Series A
Preference Shareholder would receive on an as-converted basis).
The balance of any proceeds shall be distributed pro rata to holders of
Series A Preference Shares (on an as-converted basis) and holders of
Ordinary Shares.
Voting Rights: The Series A Preference Shares shall vote together with the Ordinary
Shares on an as-converted basis, and not as a separate class, except (i)
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the Lead Investorso long as any Series A Preference Shares remain in
issue, the Series A Preference Shares as a class shall be entitled to
elect one[_______] [1(_)] directors in accordance with the paragraph
entitled Board of Directors of this Term Sheet (“Series A
Directors”), and (ii) as required by law.
Optional Conversion: The Series A Preference Shares initially convert 1:1 to Ordinary
Shares at any time at option of holder, subject to adjustments for
dividends, share splits, share combinations and similar events and as
described below under “Anti-dilution Provisions”.
Anti-dilution Provisions: In the event that the Company issues additional securities at a
purchase price less than the current Series A Preference Share
conversion price, such conversion price shall be adjusted in
accordance with the following formula (broad based weighted
average basis):
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(iv) Ordinary Shares (or options to purchase Ordinary Shares)
issued or issuable to employees or directors of, or
consultants to, the Company pursuant to the ESOP or any
other plan approved by the Company’s Board of Directors;
(vi) shares issued for nil consideration under any pro rata bonus
issue, consolidation or subdivision of any shares or any
reduction or cancellation of share capital (or any similar
reorganisation of the capital of the Company) which affects
all shareholders equally; or
Mandatory Conversion: Each Series A Preference Share will automatically be converted into
Ordinary Shares at the then applicable conversion rate in the event of
(i) the closing of a underwritten public offering with a price of [___]
times the Original Purchase Price (subject to adjustments for
dividends, share splits, share combinations and similar events) and
gross proceeds to the Company of not less than $[_______] (a
“Qualified Public Offering”), or (ii) upon the written consent of the
holders of [__]% of the Series A Preference Shares.
Pre-emptive Right to Each [Major] Investor will have a right to purchase its pro rata share
Participate Pro-rata in of any offering of new securities by the Company, subject to
Future Rounds: customary exceptions. The pro rata share will be based on the ratio
of (x) the number of shares held by such holder (on an as-converted
basis) to (y) the Company’s issued securities (on an as-converted
basis). The holders exercising this right will be required to purchase
all or any portion of the new securities to be offered, and shall have
an over-allotment option to purchase any securities not purchased by
other [Major] Investors. This right will terminate immediately prior
to the Company’s initial public offering.
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Series A Preference Shares;
(vi) shares issued for nil consideration under any pro rata bonus
issue, consolidation or subdivision of any shares or any
reduction or cancellation of share capital (or any similar
reorganisation of the capital of the Company) which affects
all shareholders equally; or
Right of First Refusal The Investors and the Founders (“Eligible Shareholders”) will have
(ROFR): a right of first refusal with respect to any shares of the Company
proposed to be transferred by [Founders / shareholders], with a right
of oversubscription for Eligible Shareholders Investors of shares not
taken up by the other Eligible Shareholders Investors. Before any
such person may sell shares, he will give the Eligible Shareholders
Investors an opportunity to participate in such sale on a basis
proportionate to the amount of securities held by the seller and those
held by the participating Eligible Shareholders Investors.
The rights of first refusal will be subject to customary exceptions and
will terminate on a Qualified Public Offering.
Right of Co-Sale (Tag Without prejudice to the Investors’ rights of first refusal on share
Along): transfers, in the event that Foundersexisting shareholders of the
Company transfer in excess of 10% of their total shareholding inany
shares of the Company, the Investors shall be entitled to a tag along
right in respect of their pro-rata shareholding of the Company.
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Company.
Lock-up: Subject to customary exceptions, the Founders may not sell, transfer,
or otherwise dispose of any shares representing more than [15]% of
such Founder’s total shareholdering in the Company for a period of
2[3] years from the completion of the investment, with the exception
of any sale, transfer, or other disposal that is either (i) related to
estate, succession or tax planning or (ii) approved in writing by the
Series A Director.
Registration rights: The Ordinary Shares issued or issuable upon conversion of the Series
A Preference Shares will be “Registrable Securities.”
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following the Company’s initial public offering. The Company will
have the right to delay such registration under certain circumstances
for up to two periods of up to 90 days each in any twelve month
period.
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Market stand-off. Holders of Registrable Securities will agree if
requested by the managing underwriters of the Company’s initial
public offering not to effect any transactions with respect to any of
the Company’s securities within 180 days following the initial public
offering by the Company, provided that all officers and directors of
the Company and holders of at least 1% of the Company’s voting
securities are similarly bound. Such market standoff agreement shall
provide that any discretionary waiver or termination of the
restrictions of such agreements by the Company or representatives of
the underwriters shall apply to Investors, pro rata, based on the
number of shares held.
CORPORATE GOVERNANCE
Board of Directors: At the initial Closing, the Board shall consist of [______] directors
comprised of:
[(iv) [___] person(s) who are not employed by the Company and who
are mutually acceptable [to the Founders and Investors][to the other
directors].]
The Lead Investor shall retain its right to appoint a Series A Director
for as long as it owns not less than [ ]% of the total issued share
capital.
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Board Matters: The Board of Directors shall meet at least [monthly][quarterly],
unless otherwise agreed by a vote of the majority of Directors.
Management and Any Investor (who is not a competitor) will be granted access to
Information Rights: Company facilities and personnel during normal business hours and
with reasonable advance notification.
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include the affirmative vote of the Series A Director:
(vii)(vi) make any loan or advance to, or own any shares or other
securities of, any subsidiary or other company,
partnership, or other entity unless it is wholly owned by
the Company;
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investment policy approved by the Board;
Non-Competition and Each Founder [and key employee] will be subject to a [one] year
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Non-Solicitation: non-competition and non-solicitation clause.
Non-Disclosure and IP Each current and former Founder, employee and consultant will enter
Assignment: into a non-disclosure and IP assignment agreement in a form
reasonably acceptable to the Lead Investors.
Default rights The Definitive Agreements (as defined below) will provide for
standard default rights of the Investor, upon occurrence of default,
including drag rights, redemption, and/or control over the board
composition.
Exit rights / Redemption [If the Company has not achieved an IPO or trade sale by the [7th]
anniversary of Closing standard exit rights shall apply, including
rights to require repurchase of Investors’ shares, or finding of a third
party buyer, thereafter.]
CONDITIONS TO CLOSING
Due Diligence: Immediately after the execution of this Term Sheet, the Founders
shall procure that the Company provides the Lead Investor with all
information reasonably required for the purposes of financial,
business, tax, legal, regulatory, technical and compliance due
diligence.
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Preference Shares (“New Constitution”).
The Company and the Founders and such other shareholders party to
the Definitive Agreements will further indemnify the Investors
against any breach of representations or warranties or covenants of
the Company, as is customary in transactions of this type.
Joint and several: Unless otherwise agreed by the parties, all representations and
warranties, indemnities, covenants, agreements and obligations given
or entered into by the existing Founders and the Company pursuant to
this Term Sheet or the Definitive Agreements are given or entered
into on a joint and several basis.
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and obligations under the Definitive Agreements;
MISCELLANEOUS
Legal Effect: The parties acknowledge that this Term Sheet does not address all
essential terms of the potential transaction, and that such essential
terms will be the subject of further negotiations. The Parties further
acknowledge and agree that any party shall have the right to
terminate the negotiation of the potential transaction contemplated in
this Term Sheet for any reason or no reason and that no party owes
the other parties any duty to negotiate a formal agreement. Other
than the terms of the Binding Provisions, this Term Sheet is not
intended to impose any obligation whatsoever on any Party,
including, without limitation, an obligation to negotiate in good faith.
Further, other than the terms of the Binding Provisions, this Term
Sheet is not intended to be and shall not be construed to be a
commitment, contract, offer, counter-offer or binding agreement
among the Parties, the intention of the Parties being that no binding
agreement shall arise until such time as the parties negotiate, execute
and deliver formal and definitive documentation, including, without
limitation the Definitive Agreements.
Exclusivity: The Company agrees to work in good faith towards a closing. The
Company and the Founders agree that they will not, for a period of 30
days[______] weeks from the date these terms are accepted, take any
action to solicit, initiate, encourage or assist the submission of any
proposal, negotiation or offer from any person or entity other than the
Investors relating to the issuance, of any shares in the Company [or
the acquisition, sale, lease, license or other disposition of the
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Company or any material part of the shares or assets of the
Company] and shall notify the Lead Investor promptly of any
inquiries by any third parties.
[In the event that the Company breaches this exclusivity obligation
and, prior to [________], closes any of the above-referenced
transactions [without providing the Investors the opportunity to
invest on the same terms as the other parties to such transaction], then
the Company shall pay to the Investors $[_______] upon the closing
of any such transaction as liquidated damages.]
Counterparts: This Term Sheet may be signed in counterparts, and all of the
counterparts of this Term Sheet taken together shall constitute one
and the same document.
Expenses: The Company to pay all legal and administrative costs of the
financing, including reasonable fees and expenses of the Investor’
counsel, unless the transaction is not completed because the Investors
withdraw their commitment without cause.
The Company and the Investors will each pay their own fees and
expenses of legal counsel related to the transaction provided that on
successful closing of such transaction, the Company will indemnify
the Lead Investor for such reasonable fees and expenses up to a cap
of $[30,000].
Confidentiality: The Company will not disclose the terms of this Term Sheet to any
person other than officers, directors and the Company’s accountants
and legal advisors and other potential Investors acceptable to the
Lead Investor, without the written consent of the Lead Investor.
Expiration: This Term Sheet expires on [_______ __,___] if not accepted by the
Company by that date.
[SIGNATURE BLOCKS]
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EXHIBIT A
Pre-Financing Post-Financing
Total
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