Download Polaris Seed Round Term Sheet

MEM, Inc.
Series A Convertible Preferred Stock
Polaris Venture Partners
Term Sheet
November 13, 2009
A. Company:
MEM, Inc. (the "Company"), a Delaware corporation
B. Amount/Investors:
Polaris Venture Partners (“Polaris”)...............
Other investors ...............................................
$ 400,000
100,000
Total ...............................................................
$ 500,000
The above purchaser(s) of the Series A Preferred are sometimes
referred to as "the Investor(s)" in this term sheet.
C. Security:
Series A Convertible Preferred Stock (the "Preferred" )
D. Price:
$0.88 per share (the Original Purchase Price) resulting in a fullydiluted post-money valuation of approximately $3.0 million, with
purchasers of the Preferred owning 16.7% of the fully-diluted,
post-investment capitalization of the Company as shown on the
attached "Capitalization Table". For the purpose of this
calculation, an option pool representing 10.0% of the fullydiluted, post-investment capitalization of the Company shall be
created and the shares shall be deemed issued and outstanding.
E. Rights, Preferences,
Privileges and
Restrictions of
Preferred:
(1) Dividend: The Preferred will receive in preference to all
other shareholders an annual dividend of 6% of the Original
Purchase Price payable when and if declared by the board of
directors. Such dividends shall be non-cumulative and noncompounding. In addition, the Preferred will participate in any
other dividend on an as-converted basis.
(2) Liquidation Preference: The Preferred will receive in
preference to all other shareholders an amount equal to the
Original Purchase Price of the shares plus any declared but
unpaid dividends (the "Liquidation Amount"). Liquidation to
include merger, sale of company, exclusive license or sale of
significant assets.
E. Rights, Preferences,
Privileges and
Restrictions of
Preferred:
(continued)
(3) Automatic Conversion: Upon the closing of an underwritten
initial public offering at a price per share of at least 3x the
conversion price of the Preferred and aggregate gross proceeds of
at least $20.0 million (a "Qualified IPO") the Preferred will
automatically convert into common stock at the then effective
conversion price.
(4) Antidilution Provisions: If the Company issues additional
shares at a purchase price less than the applicable conversion
price of the Preferred, the conversion price will be reduced, based
on a "weighted average" formula.
(5) Voting Rights: So long as any Preferred is outstanding, the
holders of Preferred shall be entitled to one vote per share on an
as-if-converted basis.
Consent of two-thirds of the Preferred shall be required for
any action which:
(a) amends the preferences, rights, or privileges of the
Preferred;
(b) amends the Company's certificate of incorporation or bylaws;
(c) creates any class or series of stock on parity or having
preference over the Preferred;
(d) effects a change of control, liquidation, merger,
reincorporation, recapitalization, or exclusive license or sale
or other transfer of a substantial part of the Company's assets
other than in the ordinary course of business;
(e) effects any acquisition of the capital stock of another
entity which results in the consolidation of that entity into the
results of operations of the Company or acquisition of all or
substantially all of the assets of another entity or;
(f) creates indebtedness for borrowed money, in a single or
related series of transactions, in an amount in excess of
$500,000;
(g) creates a new plan or arrangement for the grant of stock
options or the issuance of restricted stock or increases the
number of shares available under such a plan or
arrangement;
E. Rights, Preferences,
Privileges and
Restrictions of
Preferred:
(continued)
(h) increases the number of directors; or
(i) pays or declares any dividend or distribution on any
shares of the Company’s capital stock (except dividends
payable solely in shares of common stock), or applies any of
the Company’s assets to the redemption or repurchase of the
Company’s capital stock (except as contemplated herein).
(6). Redemption: Holders of the majority of the Preferred may
elect to cause the Company to redeem the Preferred in three (3)
equal annual installments commencing on the fifth anniversary of
the issuance of the Preferred at a redemption price equal to the
Liquidation Amount plus any accrued dividends plus interest on
the Liquidation Amount from the date of issuance at the annual
rate of eight percent (8%).
Any amount due on redemption that is not paid when due shall
thereafter bear interest at one percent (1%) per month until paid.
F. Board of Directors:
The board of directors of the Company will consist of five (5)
members. The principal shareholders of the Company, including
holders of the Preferred, will agree to vote for directors as
follows:
(1) Two (2) directors nominated by the holders of the
Preferred, one of which shall be a representative of Polaris.
(2) Two (2) directors nominated by the holders of the
Common Stock, one of which shall be the CEO of the
Company.
(3) One (1) outside independent director to be nominated by
mutual agreement of the other directors.
The board shall meet monthly for the first year and thereafter as
determined by the board.
Directors shall be reimbursed for their reasonable travel or other
expenses incurred in connection with their attendance at board
meetings or other Company business.
The board shall appoint a Compensation Committee consisting of
one of the Preferred nominees and the outside independent
director to set compensation, including option grants or other
equity compensation.
G. Information Rights,
Inspection Rights:
As long as 20% of the Preferred or resulting common stock is
outstanding, the Company will provide any Investor holding at
least 20% of the Preferred shares originally purchased by said
Investor with monthly, quarterly, and annual financial
information and access to the Company's properties as is
customary.
H. Registration Rights:
The holders of the Preferred may request two demand and
unlimited S-3 registrations subject to minimum proceeds
limitations. The holders of the Preferred will also be entitled to
"piggy-back" registration rights on registrations of the Company,
subject to customary underwriters' cutback. The Company will
pay registration expenses other than underwriters' discounts.
Registration rights may be transferred to a transferee who
acquires at least 5% of the Investor's shares, provided however,
that no transfer will be made to a competitor of the Company.
Transfer of registration rights to a partner or shareholder of any
Investor will not be subject to the foregoing restriction as to
minimum shareholding.
I. Key Person
Insurance:
$1,000,000 on [
the Company.
] and [
]; proceeds to
J. Future Option
Grants:
Options granted by the Company shall provide for 25% vesting
on the first anniversary of the grant date and monthly vesting
thereafter over the next 36 months.
K. Founder Stock
Vesting:
Each Founder's stock shall be subject to vesting as follows: 25%
shall be fully vested; the balance will vest quarterly over the four
years following the closing. Upon termination of the Founder's
employment, the Company may repurchase shares then unvested,
at their original purchase price. Upon a change of control of the
Company, vesting shall be accelerated by one year. If, within
one year after a change of control, the Founder is discharged
without "cause" or is "constructively" discharged (e.g., by a
reduction in compensation), all unvested shares shall become
vested. For this purpose, the following individuals shall be
deemed a "Founder": [
] and [
].
L. First Refusal Right
for New Securities:
Until less than 15% of the Preferred remains outstanding, if the
Company proposes to offer any equity securities (subject to
certain exceptions, including the sale of common stock or grant
of common stock options to employees) the Investors will be
entitled to purchase their fully-diluted percentage of such
offering.
M. Stock Restriction
Agreements:
The Founders shall enter into a Stock Restriction Agreement
pursuant to which the Company (first) and the Investors (second),
will have the right of first refusal (pro rata) with respect to any
proposed sale of stock by any Founder. Such right to terminate
upon a Qualified IPO.
N. Right of Co-Sale:
The Stock Restriction Agreement executed by the Founders will
contain a right of co-sale providing the Investors with an
opportunity to participate in a sale of shares by the Founders on a
basis proportionate to the amount of the securities held by the
seller and those held by the Investors.
O. Non-Competition
Agreements:
All present and future employees and consultants will enter into a
non-competition, non-solicitation agreement, and a nondisclosure and developments agreement in a form reasonably
acceptable to the Investors. The period of non-competition and
non-solicitation will be twelve (12) months.
P. Purchase Agreement:
There will be a Preferred Stock Purchase Agreement drafted by
counsel to the Investors that will contain customary
representations, warranties and covenants.
Q. Non-Binding Terms:
The foregoing is a summary of terms for a proposed transaction
and is not intended to be complete. Except as provided under
"Expenses" and "Exclusivity Period", which are intended to be
legally binding on the Company, this summary of terms is not an
offer, or an agreement, and a legally enforceable agreement will
arise only upon the Investors’ completion of a satisfactory due
diligence investigation of the Company and the parties' execution
and delivery of definitive agreements.
R. Exclusivity Period:
The Company hereby agrees not to initiate contacts with,
negotiate with, or aid in the due diligence of any other potential
investors during a period of forty-five (45) days from the
execution of this summary, without the prior written consent of
the Investors. The terms of this summary are to be kept
confidential and are not to be disclosed to any person other than
the Company's officers and directors and legal or financial
advisors without the prior written consent of the Investors. This
exclusivity period is granted in consideration of the due diligence
effort conducted and to be conducted by the Investors.
S. Expenses:
The Company will pay the reasonable legal fees and expenses of
counsel to the Investors, whether or not the contemplated
transaction is consummated.
T. Proposed Closing
Date:
The proposed closing date is January 5, 2010, provided that this
term sheet is executed by the Company on or before November
20, 2009. If not executed by such date, this term sheet shall be
deemed to be withdrawn.
***
Please indicate your acceptance of this summary term sheet by signing below and returning an
executed copy.
Accepted and agreed to:
MEM, INC.
By:
Name:
Title: