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[NAME OF ISSUER]
MEMORANDUM OF TERMS
This Memorandum of Terms represents only the current thinking 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. This Memorandum of Terms does not constitute an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted.
Issuer: [__________], a Delaware corporation (the “Company”)
Securities: Series AA Preferred Stock (the “Preferred”)
Valuation of the Company: $[__________] pre-money
Amount of the offering: $[__________]
Number of shares: [__________] shares
Price per share: $[__________]
TERMS OF THE PREFERRED
Liquidation preference: In the event of a liquidation, dissolution or winding up of the Company, the Preferred will have the right to receive the original purchase price prior to any distribution to the common stock. The remaining assets will be distributed pro rata to the holders of common stock. A sale of all or substantially all of the Company’s assets or a merger or consolidation of the Company with any other company will be treated as a liquidation of the Company.
Conversion: The Preferred may be converted at any time, at the option of the holder, into shares of common stock. The conversion rate will initially be 1:1, subject to customary adjustments.
Automatic conversion: Each share of Preferred will automatically convert into common stock, at the then applicable conversion rate, upon (i) the closing of a firmly underwritten public offering of common stock, or (ii) the consent of the holders of at least a majority of the then outstanding shares of Preferred.
General voting rights: Each share of Preferred will have the right to a number of votes equal to the number of shares of common stock issuable upon conversion of each such share of Preferred. The Preferred will vote with the common stock on all matters except as specifically provided herein or as otherwise required by law.
Protective provisions: So long as any of the Preferred is outstanding, consent of the holders of at least 50% of the Preferred will be required for any action that: (i) alters any provision of the certificate of incorporation if it would adversely alter the rights, preferences, privileges or powers of the Preferred; (ii) changes the authorized number of shares of Preferred; or (iii) approves any merger, sale of assets or other corporate reorganization or acquisition.
Right to maintain
proportionate ownership: Each holder of at least [_________] shares of Preferred will have a right to purchase its pro rata share of any offering of new securities by the Company, subject to customary exceptions. The pro rata share will be based on the ratio of (x) the number of shares of Preferred held by such holder (on an as-converted basis) to (y) the Company’s fully-diluted capitalization (on an as-converted and as-exercised basis). This right will terminate immediately prior to the Company’s initial public offering or five years after the financing.
Information rights: As soon as practicable, the Company will deliver to each holder of at least [______] shares of Preferred, (i) unaudited annual financial statements and (ii) unaudited quarterly financial statements. The information rights will terminate upon an initial public offering.
Other Matters: Market stand-off. Holders of Preferred will agree not to effect any transactions with respect to any of the Company’s securities within 180 days following the Company’s initial public offering, provided that all officers, directors and 1% stockholders of the Company are similarly bound.