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Termsheet%20template%20with%20explanations - BLACK BOX...

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BLACK BOX TECHNOLOGY, INC. Term Sheet These terms do not constitute any form of binding contract but rather are solely for the purpose of outlining the principal terms pursuant to which a definitive agreement may ultimately be entered into. Offering Terms : Issuer Black Box Technology, Inc., a Delaware corporation (the “Company”). Investors Entities managed by ________________________ (the “Lead Investor”) [, and other mutually agreed investors (collectively with the Lead Investor, the “Investors”)]. Preferred shares to be issued ________ shares of Series A Convertible Preferred Stock (the “Preferred”). [________ shares of the Preferred will be issued to the Lead Investor and ___________ shares will be issued to ______________.] [In the Lead Investor’s discretion, __________ shares of Preferred will be issued to [experienced investors in early-stage ___________ investing] [strategic partners] mutually acceptable to the Company and the Lead Investor.] Companies typically sell preferred stock to investors because preferred stock is the instrument that best meets the needs of investors and companies. Companies typically don’t have cash to pay interest on debt and, if they do have cash, can put it to better use growing their business. Price The Preferred will be issued at an issue price of $____ per share (“Original Purchase Price”), based on the capitalization of the Company set forth under the heading “post-financing capitalization” attached hereto as Exhibit A . The shares of preferred stock typically contain liquidation preferences, superior voting rights and certain other preferences over the common stock. These provisions help justify a higher per share price for the preferred stock and allow the Company to grant stock options to its employees at a lower common stock price without adverse tax consequences to the employee and without adverse accounting consequences to the Company. The Company’s accounting firm must sign off on the difference between the preferred stock price and the common stock price, and so it is best to get them involved early in the Company’s preferred stock offering process.
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- 2 - The Investors will typically want to tie the per share price to a specific capitalization table. This is because the Investors will want to make sure that the percentage of the Company that the Investors expect to get at closing remains constant, even if outstanding shares or warrants are overlooked at the term sheet stage but discovered before closing. The price per share is not an end in and of itself. The Investors shouldn’t care what the price per share is -- they should care about the total amount of their investment and what percentage of the Company that investment will get them. Percentage of equity The Preferred is initially convertible into common stock representing [30- 70%] of the outstanding securities of the Company on a fully-diluted basis.
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