Series A Term Sheet

PREPARED FOR
[Sender Company Name] 

PREPARED BY
[Lead Investor Name] 

Series A Term Sheet 

Terms for Proposed Private Placement of Series A Preferred Stock of
[Sender Company Name] 
Date: [Term Sheet Execution Date] 

1. Issuer Company: [Sender Company Name], a [State of Incorporation] Corporation (the “Company”)
 
2. Type of Security: Series A Preferred Stock (the “Series A”).
 
3. Investors:

(a) Lead Investor:
[Lead Investor Name] (the “Lead Investor”)

(b) Additional Investors: 
(i) [Additional Investor 1 Name] 
(ii) [Additional  Investor 2 Name] 
(iii) [Additional Investor 3 Name] 
 
(collectively, together with the Lead Investor, “Investors”)
 
4. Investment Amount

(a) Lead Investment: [Investment Amount from Lead Investor] contributed by [Lead Investor Name] ("Lead Investor")
 
(b) Additional Investments: An aggregate amount of[Investment Amount from Additional Investors] contributed by Additional investors.

Convertible notes and safes (“Convertibles”) shall convert on their terms into a shadow series of preferred stock (collectively with the Series A, the “Preferred Stock”).
 
5. Closing: Sale of the Series A Preferred (the “Closing”) is anticipated to take place on [Closing Date] 
 
6. Price: [Price Per Share] per share (the "Purchase Price")
 
7. Valuation: The Purchase Price represents a fully diluted pre-money valuation of [Pre-Money Valuation] and a fully diluted post-money valuation of [Post-Money Valuation].
 
8. Founders: [Founder Name(s)] 
 
9. Board of Directors: At the Closing, the Board shall consist of [Number of Members] member(s) comprised of:

(a) [Representative Designated by Lead Investor], the representative designated by [Lead Investor Name].

(b) [Representative Designated by Additional Investors], the representative designated by the additional investors.

(c) [Representative Designated by Founders], the representative designated by the Founders.
 
Note: These terms do not constitute a contract and are not legally binding upon the parties, except for the clauses 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.

(a) Satisfactory completion of confirmatory due diligence.

(b) Negotiation of customary legal documentation in compliance with this term sheet (including a simplification of the Company’s by-laws, to the extent relevant).

(c) Approval of the proposed investment/definitive agreements by the New Investors’ respective investment committees or other competent bodies, if applicable.

(d) Receipt by the investors of anti-money laundering documents is reasonably satisfactory to them.

(e) Receipt of waiver of any existing pre-emptive rights and/or other necessary approvals and consents.

(f) No unanticipated material adverse events.

2. CAPITALIZATION.

The following table shows the Company's capital structure:

Category	Shares	Percentage
Common Stock Outstanding	[Number of shares]	[Share percentage]%
Employee Stock Options – Reserved Pool	[Number of shares]	[Share percentage]%
Series A Preferred – [Lead Investor Name]	[Number of shares]	[Share percentage]%
Series A Preferred – [Other Investors]	[Number of shares]	[Share percentage]%
Fully Diluted Shares	[Total number of shares]	[Total share percentage] %

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 [Dividend Percentage] of the Purchase Price per annum, when and as declared by the Board of Directors.

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

4. LIQUIDATION PREFERENCE.

(a) In the event of any liquidation, dissolution, merger, sale, or similar transaction of the Company, the Series A Preferred shareholders shall receive, before any distribution to Common Stock holders, an amount equal to [Liquidation Preference] times the Purchase Price per share, plus any declared but unpaid dividends (the “Liquidation Preference”).

(b) 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 [Preferred Stock Initial Conversion Ratio], subject to adjustment as provided in the section titled "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 [Cap on Automatic Conversion] times the Purchase Price and for a total offering of not less than [Qualified IPO] (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 adjustments for stock splits, stock dividends, combinations, recapitalizations, and similar events.
 
8. PRE-EMPTIVE RIGHTS.

(a) The Series A Preferred will not be redeemable in a manner consistent with the applicable law of the [Governing Law].

(b) 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 [Governing Law], except that shares held by the same shareholders for at least [Continuous Shareholding in Years for Double Voting Rights] years following the Closing shall enjoy double voting rights.

(c) A shareholders’ agreement (the “Agreement”) will be entered into on the Closing date among the Founders, the Investors owning more than [Percentage of Share Holdings] of the share capital, and the New Investors, for a term of [Agreement Term in Years before Renewal] years, renewable.

9. REDEMPTION.

At the request of holders representing a majority of the Series A Preferred, the Company shall redeem all outstanding Series A Preferred shares in [Number of Installments] equal annual installments beginning on the [Years After Closing to Begin Redemption] anniversary of the Closing. Such redemptions shall be at a purchase price equal to the [Redemption Multiplier of Purchase Price] times the 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 based 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 the 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 owning more than [Minimum Ownership Threshold] of the Company’s Common Stock.

12. DRAG-ALONG RIGHTS.

Founders, Investors, and [Percentage of Stockholders Required to Approve Company Sale] stockholders are 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:

(a) Unaudited annual financial statements within [Unaudited Financial Statements Submission Timeline] and audited annual financial statements within [Audited Financial Statements Submission Timeline] of the financial year closing.

(b) Unaudited Quarterly (and year-to-date) financial statements within [Quarterly Financials Submission Timeline in Days] day(s) before the start of a new financial year.

(c) Monthly management accounts shall be submitted within [Monthly Management Accounts Submission Timeline in Days] days following the end of each month.

(d) Annual Operating Plans for the following financial year shall be delivered at least [Annual Operating Plan Submission Timeline in Days] day(s) before the start of a new financial year.

(e) Information regarding the appointment or resignation of any significant member within [Notice Period for Appointment or Resignation in Days] day(s) from the date of the appointment or resignation.

(f) 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 [Total Vesting Period in Years] year period. The stock currently held by Founders will be considered [Percentage of Founders’ Stock Already Vested] vested as of the Closing of this financing, with the remaining balance vesting in equal monthly installments over [Remaining Vesting Period for Founders in Years] year(s). All other employees’ and management stock options shall vest in equal installments over [Total Vesting Period for Others in Years] years, with a [Cliff Period in Years] year cliff at the start of the vesting schedule.

15. NO SHOP CLAUSE.

For a period of [No-Shop Period in Days] day(s), 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, and 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 of [Governing Law].

ACCEPTANCE AND SIGNATURE.

IN WITNESS WHEREOF, this Term Sheet is duly signed by the authorized representatives of the Parties as set forth below:

[Sender Company Name] 

[Lead Investor Name] 

Name: 

Name: 

Signature:

Signature:

Date: 

Date:

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