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December 3, 2018
TERM SHEET FOR A PROPOSED INVESTMENT IN______LTD.
The Company / ______The Founders / ______("Founder")
Current Capitalization / The current capitalization of the Company is set forth in Exhibit A hereto.
Investor / ______or any other entity controlled by it, or under common control with it (collectively: "Investor").
Investment Amount / $1,000,000 (one million U.S. Dollars) ("Investment")
Time Of Payment / $500,000 to be paid at Closing and the balance within 90 days thereafter.
Pre-Money Valuation Of The Company / Sevenmillion ($7,000,000), on a fully diluted basis (i.e. after conversion of all shareholders' loans to equity, the reservation of shares for employee stock option plan as set forth below, and assuming the issuance of securities pursuant to any other options, warrants, convertible debentures and the like).
Securites Offered / Preferred C Shares, convertible to Ordinary Shares of the Company (collectively: "Preferred Shares").
Number of Securities Offered / In consideration for the Investment, the Investor will receive ______Preferred C Shares, representing at the Closing 12.5% of the Company's securities on a fully diluted basis.
Price Per Share / $
Time of Issuance / At the Closing.
The Option / The Investor and/or any person or entity introduced by Investor to the Company, shall have the right, valid until the date which is 12 months following the Closing, to increase and/or to make a new investment in the Company and to purchase up to _____additional Preferred Shares (as may be adjusted from time to time due to any subdivision, combination, distribution, bonus shares recapitalization, reclassification or any other such change of the Company's shares ("Recapitalization Event") in consideration of up to $______(i.e. $- per each Preferred Share). Such investment will be made on a pre-money valuation of the Company of $10 million, on a fully diluted basis (excluding any options or warrants granted to the Investor pursuant to the share purchase agreement contemplated herein) and shall be paid in a one time payment to the Company. The Preferred Shares in consideration for the Option will be issued at the Option Closing.
Consultation Agreement / At the Closing the Company and shall enter into a Consultation Agreement in the form attached hereto as Exhibit B pursuant to which the Company shall retain the services of Consultant for a period of at least ___ months, , in consideration for a monthly sum of $____, plus VAT.
Use Of Proceeds / The proceeds of the Investment shall be used by the Company for the purposes set forth in a budget to be submitted to, and approved by, the Investor prior to Closing. In no event shall the proceeds be used to repay any shareholder loans, or other loans.
Employment Agreements With the CTO / Prior to Closing the CTO of the Company, Mr. ______, shall enter into an employment agreement for a term of at least 3 years from Closing, such that if the CTO leaves the employment of the Company at his will, or is terminated for cause ("Termination Event"), prior to the end of such 3 year period, he shall be obligated to sell all his shares to the Company for their par value.
Employee Stock Option Plan / The Company has adopted an employee stock option plan reserving at least 10% of its outstanding share capital (on a fully diluted basis, calculated immediately after the Closing), for further allocation to employees (other than the Founder), consultants and directors of the Company.
Director's Insurance / Prior to the Closing the Company shall procure director's insurance on terms customary for companies of the size of the Company and with the type of activities conducted by the Company.
Other Terms and
Conditions / Other terms and conditions, including representations and warranties by the
Company and the Founders, will include those standard for a transaction of this type, as well as any others that may arise as a result of continuing due diligence.
Expenses / At (and subject to ) the Closing, the Company shall pay legal and other fees and costs incurred by the Investor in connection with the investment contemplated hereby, including in connection with the due diligence process and the negotiations and preparation of definitive investment agreement, up to $10,000 plus VAT and out of pocket expenses. Such payment will be made in three equal installments.
Conversion of Preferred Shares / The Preferred Shares shall be convertible in to Ordinary Shares at any time, at the election of each holder of Preferred Shares, and shall be automatically converted into Ordinary Shares upon (I) the closing of a firmly underwritten public offering of Ordinary Shares of the Company reflecting a pre-money valuation of the Company of more than $50 million and netting to the Company proceeds of more than $10 million, or (ii) written consent of at least 51% of the holders of the Preferred Shares. Initially, such conversion shall be on a one-to-one basis, but such conversion ratio shall be adjusted in the event of any Recapitalization Event, and as a result of the anti-dilution provisions set forth below.
Voting Rights / The Preferred C Shares shall vote together with the other shares of the Company, and not as a separate class, in all shareholders meetings, except as required by law. Each Preferred Share shall have votes in such number as if then converted into Ordinary Shares (on as-converted basis).
Dividend Preference / The Preferred Shares shall be entitled to preference over all other equity securities of the Company in the event dividends are being distributed, to receive for each Preferred Share an amount equal to the US$__ price per share paid for each Preferred Share plus interest at the rate of 8% per annum, compounded annually, from the date of the investment to the date of distribution of such dividends (subject to adjustments for Recapitalizations Event etc.), senior to the holders of all other classes of shares, and will then participate on an as-converted basis in any remaining distribution.
Liquidation Preference / The Preferred Shares shall be senior to all other equity securities of the Company in the event of the liquidation, bankruptcy or reorganization of the Company. At the discretion of the Investor, the sale of all or substantially all of the assets of the Company, the acquisition of the Company, the acquisition of or all most of the outstanding shares of the Company, or a merger of the Company in which the shareholders of the Company do not own a majority of the shares of the surviving entity, shall be deemed and treated as a liquidation.In the event of liquidation, or deemed liquidation, the Investor shall be entitled to receive an amount per each Preferred Share (in cash, cash equivalents or, if applicable, securities) equal to the US$__ price per share paid for each Preferred Share, plus interest at the rate of 8% per annum, compounded annually, from the date of the investment to the date of liquidation or deemed liquidation (subject to adjustments for recapitalizations etc.), senior to the holders of all other equity securities of the Company, and will then participate on as-converted basis in the distribution of any remaining proceeds to the other shareholders of the Company
Anti-Dilution / Until the IPO, if the Company issues new securities at a price per Ordinary Share, or per share convertible into an Ordinary Share, which
is lower than the price per share applicable to the Investment, (and as may be adjusted from time to timedue to any Recapitalization Event), the conversion ratio of the Preferred Shares shall be reduced , for no additional consideration, so that upon the conversion thereof the Investor shall be entitled to additional Ordinary Shares as if the Investor had made its investment based on such lower price (standard full ratchet anti-dilution provisions). The aforesaid shall not apply to the issuance to employees of shares or options constituting up to 10% of the Company's share capital, on a fully diluted basis, pursuant to an approved stock option plan.
Restrictive Provisions / Until an IPO, any action or resolution of the Company's general meeting, or of the Company's Board of Directors (or any committee thereof), as applicable, or of any subsidiary of the Company, regarding any of the following issues shall require the consent of the Investor or, if applicable, of the director(s) appointed by the Investor: (1) amendment to the articles of Association of the Company; (2) Special Resolutions (as defined in the Companies Ordinance); (3) a material change in the business of the Company; (4) issuance of capital stock, rights, options or warrants to purchase capital stock, or other securities convertible into capital stock (except up to 10% of the Company's share capital on a fully diluted basis under approved Employee Stock Option Plans), which have rights, preferences and privileges ranking senior to, or on parity with the Preferred Shares; (5) merger, consolidation or acquisition or the sale, lease or other disposal of all or substantially all of the Company's assets; (6) approval of the Company's annual operating plan and budget, and any material deviations therefrom; (7) transactions with any officer, director, shareholder or other interested party, or any other party related, directly or indirectly, to any of them; (8) declaration and payment of any dividends or other distributions; (9) liquidation, dissolution or winding-up of the Company; (10) the constitution of any committee of the Board of Directors or of the board of directors of any subsidiary of the Company; (11) determination or a change of the signatory rights on behalf of the Company (12) appointment or dismissal of the Company's senior management; (13) appointment of accountants and attorneys to the Company; (14) approval of any transaction of the Company relating to the Company's technology (except for any such transaction entered into in the ordinary course of business and of the type and within the scope approved in advance by the Board of Directors; with the consent of the director(s) appointed by the Investor); (15) any transaction of the Company exceeding $250,000 or which is not in the Company's ordinary course of business; and (16) such other actions and resolutions as shall be agreed upon in the definitive agreement.
Preemptive Rights / Prior to an IPO, the shareholders of the Company (including the Investor) shall have the right to maintain their percentage ownership in the Company (calculated on an as-converted basis) by purchasing a pro rata portion of any further issuance of securities by the Company at the offering price. Any securities not subscribed for by any shareholder will be offered to such shareholders who have subscribed for their full pro-rata amounts, pro-rate based on their subscriptions
Right of First Refusal / Prior to an IPO, all shareholders shall have a right of first refusal to purchase any shares of the Company offered for sale by any shareholder to any person or entity, subject to standard exceptions for transfer to affiliates and family members.
No Sale / The Founders shall not sell, transfer assign pledge or otherwise dispose of more than 10% of the shares held or owned by him per year, and not more than 25% in the aggregate prior to the IPO
Co-Sale / Until the IPO, in any event of the sale or transfer of shares by a Founder/the holders of majority of the issued share capital of the Company, the Investor shall have the co-sale right to participate in such sale on a pro-rata basis. Notwithstanding the aforesaid, if the Founders shall sell shares of the Company in a transaction or series of transactions which result in a change in control of the Company, the Investor shall have the right to participate in such transaction and to sell all of its shares in the Company.
Board of Directors / The Company's Board of Directors shall consist of 5 directors, 3 of which shall be elected by the holders of the majority of the Ordinary shares and Preferred A and B Shares, and 1 shall be elected by the Investor;
Bring Along / Prior to an IPO, in the event that shareholders holding more than 70% of the voting power in the Company accept an offer to sell all of their shares to a third party, and such sale is conditioned upon the sale of all remaining shares of the Company to such third party, all other shareholders shall be required to sell their shares in such transaction, on the same terms and conditions, except that holders of Preferred Shares shall not be required to sell their shares as aforesaid unless the price per share in such transaction shall yield to them an annual internal rate of return on their investment of at least 8%.
Information Rights / Prior to an IPO, the Investor shall be entitled to receive from the Company: (1) annual financial statements (including a balance sheet, statement of income and statement of cash flow), audited by an accounting firm, within 90 days after the end of each fiscal year; (2) unaudited, but reviewed, quarterly financial statements (including a balance sheet, statement of income and statement of cash flow) within 45 days from the end of each quarter; (3) a monthly management report containing such information as shall be determined by the Company and the Investor (it being understood that such a report will be submitted only after the appointment of either a CEO or a CFO to the Company); (4) an annual operating plan and budget, at least 30 days prior to the first day of the year covered by such plan; and (5) such other information as may be reasonably requested by the Investor.
Internal Reporting / Requirements / The Company's management shall submit to the Board of Directors for its approval, annually, an annual operating plan and budget, at least 30 days prior to the first day of the year covered by such plan. In addition, the Company's management shall submit to the Board of Directors monthly and other reports in such format, and containing such information, as the Board shall require.
Access and Visitation Rights / The Investor shall have, at all reasonable times and upon reasonable notice, full access to all books and records of the Company , shall be entitled to review and copy them at their discretion, and shall be entitled to inspect the properties of the Company and consult with management of the Company, all subject to standard confidentiality undertakings.
Registration Rights / The Investor shall have the right, during the period of 6 years after the closing of the IPO, to (i) two demand registrations (provided that the securities offered in such a registration will have a total market value which is not less than $______), and (ii) unlimited number of F-3 (if available) and piggyback registrations (including at the IPO), subject only to underwriter's cutbacks. The Company shall in all such registrations pay all registration costs, including the fees and costs of one counsel for the selling shareholders. The registration rights will be subject to such additional terms and conditions as are customary, including cross-indemnification, reporting obligations under applicable securities laws, limitation of subsequent registration rights and the like. Similar provisions shall apply to registrations outside the US.
Registration Preference / If any shareholders of the Company shall have the option to sell shares of the Company in the IPO or in any subsequent registration, the Investor shall have a right to register and sell his shares pari passu with such shareholders.
Finder’s Fee / Investor shall be paid a Finder's Fee of 8% as to the Investment and a Finder's Fee of 5% as to any investment made within the framework of the Option. The Investor's Finder's Fees shall be paid a the Closing and the Option Closing, respectively.
The Company and the Founders confirm that no agent, finder or broker acting on behalf of or under the authority of the Company or the Founders is or will be entitled to any broker's of finder's fee or any other similar commission or fee in connection with the transactions contemplated hereby.
No Shop; Ordinary Course / During a period of forty five days following the signing of this Term Sheet, the Company shall not solicit, negotiate and/or accept any financing offers by other parties without the written consent of the Investor, which would replace the Investment or cause the Company not to accept the Investment, for reasons other than a decision by the Investor not to consummate the Investment During such period of time, the Company shall conduct its business solely in the ordinary course of business and, among other things, shall not declare or make any distribution to shareholders or enter into another related party transaction.
Confidentiality / The Company, the Founders and any other person acting on their behalf shall keep this Term Sheet and related correspondence in strict confidence, and shall not issue any public statement or press release concerning this transaction without the Investor's prior written approval of the substance and form of any such statement or release.
Closing Conditions / Except for the "No Shop", "Ordinary Course" and "Confidentiality" provisions, this Term Sheet is a non-binding document prepared for discussion purposes only, as a statement of the Investor's present intent. Closing of the transaction contemplated hereunder is subject to satisfaction of the Investor's due diligence requirements, including financial, legal and patent, due-diligence and the signing of mutually acceptable definite agreements containing additional provisions customary in transactions of this type. In addition, the Investor shall not be obligated to invest in the Company if, in its sole judgment, the Company's condition or prospects deterioratematerially before the Closing
Anticipated Closing / 45 days from the signature of this Term Sheet
Agreed and accepted on ______, 2005
by______/ by______