Term Sheet: Free Template

Term Sheet

A term sheet outlines the specific details about how the investor will make an investment into a company. The term sheet is not typically legally binding.


Corporation: [Corporation Name]

Term Sheet

Date: [Date]

This Term Sheet represents the current understanding of the parties with respect to certain of the major issues relating to the proposed private offering and does not constitute a legally binding agreement. Except for the section entitled "Binding Terms," this summary does not constitute a legally binding obligation. Any other legally binding obligation will only be made pursuant to definitive agreements to be negotiated and executed by the parties. This Term Sheet does not constitute an offer to sell or a solicitation of an offer to buy securities in any jurisdiction where the offer or sale is not permitted.

The Offering

Issuer: [Corporation Name], a corporation incorporated under the laws of [State] (the "Corporation").

Securities: Class A Preferred Shares (the "Preferred").

Amount of the Offering: $[Offering Amount].

Price per Share: $[Amount] per share (the "Initial Price"), based on a pre-money valuation of $[Valuation] and the attached capitalization table (Appendix A).

Investor(s): [Investor Name] and other accredited investors, acceptable to the Corporation.

Closing Date: Initial closing on or before [Closing Date].

Terms of the Preferred

Liquidation Preference: The Preferred will have the right to receive the full Initial Price from proceeds on a liquidation of the Corporation with balance of proceeds paid to holders of Common Shares. A sale of the Corporation's assets, merger, reorganization, or similar transaction will be treated as a liquidation of the Corporation.

Conversion: The Preferred may be converted at any time, at the option of the holder, into Common Shares. The conversion rate will initially be 1:1, subject to customary adjustments for stock splits, stock dividends, etc.

Automatic Conversion: Each share of Preferred will automatically convert into common shares, at the then-applicable conversion rate, upon (i) the closing of a firmly underwritten initial public offering of common shares ("IPO"), or (ii) the consent the holders of at least a majority of the then outstanding shares of Preferred.

General Voting Rights: Each share of Preferred votes together with the Common Shares on all matters on an as converted basis, except as specifically noted herein or required by law.

Shareholders' Agreement

Information Rights: The Corporation will provide to each holder of at least [number]% of Preferred ("Major Investors"), (i) unaudited annual financial statements, (ii) unaudited quarterly financial statements, and an annual business plan. This right will terminate immediately prior to the Corporation's IPO or completion of a Sale Transaction (as defined below).

Protective Provisions: So long as any of the Preferred are outstanding, consent of majority of the then-outstanding Preferred will be required for any action that (i) amends the Articles of the Corporation if it would adversely alter the rights, preferences, privileges, or powers of Preferred; (ii) changes the number of directors from current number; or (iii) approves any merger, asset sale, liquidation, or other corporate reorganization or acquisition.

Preemptive Rights: Each of the Major Investors will have a right to purchase its pro-rata share of any offering of new securities by the Corporation, subject to customary exceptions. This right will terminate immediately prior to the Corporation's IPO, a Sale Transaction or [#] years after the date of Shareholders Agreement executed upon Closing.

Sale Transaction: A "Sale Transaction" shall mean (i) any merger, amalgamation, reorganization, consolidation, or other transaction involving the Corporation and any other corporation or other entity or person in which the persons who were the shareholders of the Corporation immediately prior to such merger, amalgamation, reorganization, consolidation, or other transaction own less than fifty percent (50%) of the outstanding voting shares of the surviving or continuing entity after such merger, amalgamation, reorganization, consolidation, or other transaction; (ii) the sale, exchange, or transfer by the Corporation's shareholders, in a single transaction or series of related transactions, of all of the voting shares of the Corporation; or (iii) the sale of all or substantially all of the assets of the Corporation.

Co-Sale Rights: In the event that any shareholder ("Selling Party") proposes to sell their shares to a third party ("Third Party"), the Selling Party agrees not to make the sale unless Third Party includes an offer to purchase the shares of the Investors on the same terms. If Third Party has specified a maximum number of shares that they are willing to buy, then the Selling Party and interested Investors may sell their pro-rata share of the amount to be purchased by Third Party.

Election of Directors: Provision agreeing to elect the following individuals to the board (i) one representative designated by the holders of Preferred [Investor Nominee] (the "Investor Nominee"); (ii) one representative designated by the Founders; and (iii) one representative designated by Common shareholders acceptable to the Investor Nominee and Founders.

Other Matters

Option Pool: The number of Common Shares reserved for issuance under the Corporation's stock option plan will be increased to equal [number]% shares outstanding after issuance of the Preferred to Investors.

Share Purchase Agreement: The Corporation and Investors will enter into a share purchase agreement containing standard representations and warranties, with survival period of [number] years.

Founder Matters: Each Founder shall have transferred all relevant intellectual property to the Corporation, entered into an employment agreement with the Corporation, and signed agreements with respect to voting and vesting their Founders shares over an agreed term of [number] years, the terms of such agreements satisfactory to Investors prior to Closing Date. The vesting agreement will provide for full acceleration of vesting for all shares held by the Founders on the completion of an IPO or Sale Transaction.

Expenses and Fees: The Corporation will reimburse counsel to Investors for legal fees and disbursements, up to a maximum cap of $[number].

Binding Terms: For a period of thirty days, the Corporation agrees not to solicit offers from other parties for any financing. Without the consent of Investors, the Company will not disclose these terms to anyone other than officers, directors, key service providers, and other potential Investors in this financing.

Expiration Date: These terms are valid until, and will expire on, [ Date].

Execution

This Term Sheet may be executed in counterparts, which together will constitute one document. Electronic signatures shall have the same legal effect as original signatures.

[Corporation Name]      [Investor Name(s)]

_________________________ _________________________                                 

Signature Signature

 

_________________________ _________________________                                 

Print Name Print Name

 

_________________________ _________________________

Print Title                                Print Title

 

_________________________ _________________________

Date Date

Appendix A: Capitalization Table

Shareholder Name

Common Shares

Options

Preferred Shares

Fully Diluted Shares

Pro-Forma Fully Diluted Ownership %

Founder 1

5,000,000

-

-

5,000,000

33.3%

Founder 2

5,000,000

-

-

5,000,000

33.3%

Current Holdings

10,000,000

-

-

10,000,000

n/a

Investors

-

-

3,500,000

3,500,000

23.3%

Option Pool 

-

1,500,000

-

1,500,000

10.0%

Total Proforma Holdings

10,000,000

1,500,000

3,500,000

15,000,000

100%



Any [GREEN] highlighted language is intended to be filled in by the user. Any [YELLOW] highlighted language is considered optional or conditional by the attorney community. Consult with an attorney before using this document. This document is not a substitute for legal advice or services. Refer to our Terms of Service for more details.

This form has been prepared for general informational purposes only. It does not constitute legal advice, advertising, a solicitation, or tax advice. Transmission of this form and the information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. You should not rely upon this document or information for any purpose without seeking legal advice from an appropriately licensed attorney, including without limitation to review and provide advice on the terms of this form, the appropriate approvals required in connection with the transactions contemplated by this form, and any securities law and other legal issues contemplated by this form or the transactions contemplated by this form.

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