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Series AA Termsheet

Series AA Termsheet

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Published by Y Combinator

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Published by: Y Combinator on Aug 23, 2008
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11/19/2012

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This Memorandum of Terms and all of the Series AA financing documents on this website have been prepared by WilsonSonsini Goodrich & Rosati for informational purposes only and do not constitute advertising, a solicitation, or legaladvice. Transmission of such materials and information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. Internet subscribers and online readers should not relyupon this information for any purpose without seeking legal advice from a licensed attorney in the reader’s state. Theinformation contained in this website is provided only as general information and may or may not reflect the mostcurrent legal developments; accordingly, information on this website is not promised or guaranteed to be correct or complete. Wilson Sonsini Goodrich & Rosati expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this website. Further, Wilson Sonsini Goodrich & Rosati does not necessarilyendorse, and is not responsible for, any third-party content that may be accessed through this website.
CONFIDENTIAL
[
 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 inany state where the offer or sale is not permitted.
THE OFFERING
 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 theCompany, the Preferred will have the right to receive the original purchase price prior to any distribution to the common stock. Theremaining assets will be distributed
 pro rata
to the holders of common stock. A sale of all or substantially all of the Company’sassets 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 theholder, into shares of common stock. The conversion rate willinitially be 1:1, subject to customary adjustments.
 
 Automatic conversion
:
Each share of Preferred will automatically convert into commonstock, at the then applicable conversion rate, upon (i) the closing of afirmly underwritten public offering of common stock, or (ii) theconsent of the holders of at least a majority of the then outstandingshares of Preferred.
General voting rights
:
Each share of Preferred will have the right to a number of votesequal to the number of shares of common stock issuable uponconversion of each such share of Preferred. The Preferred will votewith the common stock on all matters except as specifically providedherein or as otherwise required by law.
 Protective provisions
:
So long as any of the Preferred is outstanding, consent of the holdersof at least 50% of the Preferred will be required for any action that:(i) alters any provision of the certificate of incorporation if it wouldadversely alter the rights, preferences, privileges or powers of thePreferred; (ii) changes the authorized number of shares of Preferred;or (iii) approves any merger, sale of assets or other corporatereorganization or acquisition.
INVESTOR RIGHTS
 Right 
 
to
 
maintainproportionate
 
ownership
:
Each holder of at least [_________] shares of Preferred will have aright to purchase its
 pro rata
share of any offering of new securities by the Company, subject to customary exceptions. The
 pro rata
sharewill be based on the ratio of (x) the number of shares of Preferredheld by such holder (on an as-converted basis) to (y) the Company’sfully-diluted capitalization (on an as-converted and as-exercised basis). This right will terminate immediately prior to the Company’sinitial public offering or five years after the financing.
 Information rights:
As soon as practicable, the Company will deliver to each holder of atleast [______] shares of Preferred, (i) unaudited annual financialstatements and (ii) unaudited quarterly financial statements. Theinformation rights will terminate upon an initial public offering.
Other Matters
:Market stand-of
. Holders of Preferred will agree not to effect anytransactions with respect to any of the Company’s securities within180 days following the Company’s initial public offering, providedthat all officers, directors and 1% stockholders of the Company aresimilarly bound.(
Signature page follows
)-2-

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Eduard von Feek added this note
Thanks for putting up your financing templates! Now I'd be great if YC could give marginalia comments to this legalspeech, i.e. expressing in layman's/nerd's terms what the meaning is, and give rationale for inclusion. For example, I have no clue what's meant with: "Holders of Preferred will agree not to effect any transactions with respect to any of the Company’s securities [...]"
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