ABSTRACT
SUMMARY OF TERMS FOR SALE OF SERIES SEED SHARESCompany [Company]Founders [Founder 1], [Founder 2], & [Founder 3]Investors [Lead Investor] (the “Lead Investor”) in conjunction with other investors (the “Investors”) mutually agreeable to the Lead Investor and the Company. Structure of Financing The financing will be up to an aggregate of [___] at a fully diluted pre-money valuation of [___], including an unallocated employee share option plan (“ESOP”) of [ ]%. The Lead Investor will invest up to [___] and would hold no less than [___]% of the Company on a fully diluted basis. Conditions to Close (i) Completion of confirmatory due dili-gence and anti-money laundering checks (ii) all employees having entered into ser-vice agreements containing IP assignment provisions and (iii) receipt of all necessary consents.Estimated Closing Date [Closing Date].Type of Security Newly issued series seed convertible preferred shares (“Seed Shares”), which shall rank senior to all other shares of the
Company in all respects [and be provided with the same rights as the next series of preferred stock (with the exception of anti-dilution rights).]Liquidation Preference Upon a liquidation, dissolution, winding up, merger, acquisition, sale, exclusive licence or other disposal of substantially all of the assets or a majority of the shares of the Company (a “Change of Control”), Option 1: [the holders of the Seed Shares shall receive the higher of: (a) one times the original purchase price for the Seed Shares; or (b) the amount they would receive if all shareholders received their pro rata share of such assets or proceeds.] Option 2: [(a) the holders of the Seed Shares shall receive the one times the original purchase price for the Seed Shares; and (b) all shareholders shall receive their pro rata share of any remaining assets or proceeds.][Anti-Dilution [In the event that the Company issues Provisions] additional securities at a purchase price less than the current Series Seed Preferred conversion price, such conversion price shall be adjusted on a [ ] basis. The following issuances shall not trigger an anti-dilution adjustment: (i) securities issuable upon conversion of any of the Series Seed Preferred, or as a dividend or distribution on the Series Seed Preferred; (ii) securities issued upon the conversion of any debenture, warrant, option, or other convertible security; or (iii) Common Stock issuable upon a stock split, stock dividend, or any subdivision of shares of Common Stock; and (iv) shares of Common Stock (or options to purchase such shares of Common Stock) issued or issuable to
employees or directors of, or consultants to, the Company pursuant to any plan approved by the Company’s Board of Directors.]Important Decisions Option 1: [Certain important actions of the Company shall require the consent of the holders of a majority of the Seed Shares (a “Seed Majority”) or the Seed Director, to include amongst others, actions to: (i) alter the rights, preferences or privileges of the Seed Shares; (ii) allot any new shares beyond those anticipated by this investment; (iii) create any new class or series of shares having rights, preferences or privileges senior to or on a parity with the Seed Shares; (iv) increase the number of shares reserved for issuance to employees and consultants, whether under the ESOP or otherwise; (v) redeem or the selling of any shares; (vi) pay or declare dividends or distributions to shareholders; (vii) change the number of board members; (viii) take any action which results in a Change of Control; (ix) amend the constitutional documents; (x) effect any material change to the nature of the business or the agreed business plan; (xi) subscribe or otherwise acquire, or dispose of any shares in the capital of any other company.] Option 2: [The consent of the holders of a majority of the Seed Shares held by the Investors (an “Investor Majority” shall be required for the important decisions, substantially in the form listed in Appendix [___]Conversion Each holder of Seed Shares shall have the right to convert its shares at any time into ordinary shares of the Company (“Ordinary
Shares”) at an initial conversion rate of 1:1, subject to proportional adjustment for share splits, dividends or recapitalisations [and any anti-dilution adjustments]. The Seed Shares shall automatically convert into Ordinary Shares if (a) a Seed Majority consents to such conversion or (b) upon the closing of a firmly underwritten public offering of shares of the Company.Pre-emption All shareholders will have a pro rata right, but not an obligation, based on their ownership of issued capital, to participate in subsequent financings of the Company (subject to customary exceptions). Any shares not subscribed for may be reallocated among the other shareholders. The Investors may assign this right to another member of their fund group.Right of First Refusal The holders of the Seed Shares shall have a and Co-Sale pro rata right, but not an obligation, based on their ownership of Seed Shares, to participate on identical terms in transfers of any shares of the Company, and a right of first refusal on such transfers (subject to customary permitted transfers, including transfers by Investors to affiliated funds). Any shares not subscribed for by the holders of Seed Shares would then be offered to the holders of Ordinary Shares.Drag Along In the event that a Seed Majority and the holders of a majority of the Ordinary Shares wish to accept an offer to sell all of their shares to a third party, or enter into a Change of Control event of the Company, then subject to the approval of the Board, all other shareholders shall be required to sell their shares or to consent
to the transaction on the same terms and conditions, subject to the liquidation preferences of the Seed Shares.Restrictive Covenants Each Founder will enter into a non-compe-and Founders tition and non-solicitation agreement, and Undertakings an employment agreement in a form rea-sonably acceptable to the Investors, and shall agree to devote their entire business time and attention to the Company and to not undertake additional activities without the consent of the Investors. A breach of any of the foregoing restrictive covenants or undertakings by a Founder shall result in immediate dismissal for cause of such FounderFounder Shares Shares held by the Founders will be subject to reverse vesting provisions over three years as follows: [25% to vest one year after Closing and the remaining 75% to vest in equal monthly instalments over the next following two years.] If a Founder leaves the Company voluntarily or is dismissed for cause, they shall offer for sale to the Company (with a secondary purchase option for the holders of Seed Shares) any unvested shares at the lower of nominal value or subscription price. There shall be acceleration upon double trigger provisions so that if a Founder leaves after a Change of Control, unvested shares may become vested.Board of Directors [The board of directors of the Company (the “Board”) shall consist of a maximum of three members: the holders of Ordinary Shares may appoint two directors and the holders of Seed Shares may appoint one director.]
The Lead Investor may appoint a non-voting observer to attend meetings of the Board.Information and The Lead Investor shall receive weekly Management Rights reporting and monthly financial informa-tion [and a management rights letter to satisfy its venture capital operating com-pany requirements.] Documentation and Definitive agreements shall be draftedWarranties by counsel to the Lead Investor and shall include customary covenants, representations and warranties of the Company (which shall be liable up to a maximum of the investment amount)
reflecting the provisions set forth herein and other provisions typical to venture capital transactions. The Founders will also complete a personal questionnaire.Expenses Option 1 [The Company shall pay the Lead Investor’s fees and expenses in the transaction at Closing, anticipated not to exceed [£XX,000].] Option 2 [Each party shall pay their own legal and other fees and expenses in the
transaction. If the financing does not complete within 60 days or because the Company withdraws from negotiations (except as a result of the Lead Investor making a material change in the terms), the Company shall bear the Lead Investor’s legal costs incurred to that date.]Exclusivity In consideration of the Lead Investor committing time and expense to put in place this financing, the Company and Founders agree not to discuss, negotiate or accept any proposals regarding the sale or other disposition of debt or equity
securities, or a sale of material assets of the Company for 45 days from the date of the Company’s signature below. Confidentiality The Company and Founders agree to treat
this term sheet confidentially and will not distribute or disclose its existence or contents outside the Company without the consent of the Lead Investor, except as required to its shareholders and professional advisors.Non-binding Effect This Summary of Terms is not intended to be legally binding, with the exception of this paragraph and the paragraphs entitled Expenses, Exclusivity and Confidentiality, which are binding upon the parties hereto and shall be governed and construed in accordance with the laws of England and Wales.Acknowledged and agreed ……. Signatures from investors and entrepreneurs
