Securing Investors and Structuring the Deal 333diluted capitalization” means the (i) number of shares of capital stock of the Company issued and
outstanding, determined on an as-converted basis, (ii) the number of shares issuable upon exer-
cise of outstanding warrants, and (iii) the number of shares reserved for issuance pursuant to the
Company’s option plans.
Board Rights: So long as the Series A Preferred Investors collectively hold at least
__ shares of Series A Preferred, a representative of such group, selected by the Series A
Preferred Investors, shall be entitled to be elected to the Company’s Board of Directors.
Expenses: The Company shall pay reasonable fees and expenses of one legal counsel to the
Investors.
SOURCE: Retrieved from the Web. http://www.allianceofangels.com/startups/term_sheet.doc.
Investment Agreement Outline
Following are the general contents of an investment agreement. The major sections are typical.
Details can be added or deleted depending on practice, tradition, and the negotiating skills of the
participants.
I. Description of the Investment
This section identifies the parties, defines the basic terms, and includes descriptions of the
amount of the investment, the securities issues, any guarantees, collateral, and subordinations.
When the agreement includes warrants and options, the schedules and timing of exercise are
included here. Registration rights, transferability provisions, and dilution effects are all essential
parts of the investment and are described in this section.
II. Conditions of Closing
The closing of the deal is the actual transfer and execution of documents and funds. Typically,
documents need to be submitted to close the deal. These are corporate documents and articles
of incorporation, audited financial statements, contracts with related parties that could be con-
strued to represent conflicts of interest, and such important business documents as leases, sup-
plier agreements, and employment contracts.
III. Representations and Warranties by the Venture
This section describes in full legal disclosure terms the material facts of the new venture’s condi-
tion. These typically include:
- That the business is duly incorporated
- That the officers’ decisions legally bind the company
- That the offering is exempt from SEC registration (if indeed it is)
- That all material facts have been disclosed
IV. Representations and Warranties of the Investors
These are legally binding statements by the investors that they are indeed who they say they are
and:
APPENDIX B