TheFunded Founder Institute – Plain Preferred Term Sheet

TheFunded Founder Institute – Plain Preferred Term Sheet

TheFunded Founder Institute – Plain Preferred Term Sheet

[NAME OF ISSUER]

MEMORANDUM OF TERMS1

[INSERT DATE]

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 in any state where the offer or sale is not permitted.

THE OFFERING

Issuer: [__________], a [Delaware] corporation (the

“Company”)

Securities: Series A Preferred Stock (the “Preferred”)

Valuation of the Company: $[__________] pre-money

Amount of the offering: $[__________]

Number of shares: [__________] shares

Price per share: $[__________]

Investor(s): [__________] or its affiliated entities and other

investors acceptable to the Company.

Capitalization: See attached capitalization table for the

Company’s pre-financing capitalization and pro forma
capitalization.

Anticipated closing date: Initial closing on or before

[__________], with additional closings within 120 days.

TERMS OF THE PREFERRED

Dividends: Non-cumulative dividends at an annual rate of 8% of

original Preferred price (if declared by board).
 Liquidation preference: 1x liquidation preference, non-
participating.

Redemption rights: None.

Conversion: 1:1 conversion to Class A Common Stock (subject

to anti-dilution adjustments) at any time at the option of the
holder. Automatic conversion upon (i) closing of a firmly
underwritten public offering, or (ii) consent of at least 50% of the
outstanding Preferred.

Anti-dilution: Broad based weighted average, subject to

customary exceptions, including shares issued in connection with:
(i) plans, agreements or similar arrangements for employees,
consultants or directors approved by the board; (ii) a registered
public offering; (iii) an acquisition or joint venture approved by
the board; (iv) debt financing or commercial transactions
approved by the board; (v) a settlement approved by the board;
(vi) sponsored research, collaboration, technology license,
development, OEM, marketing or similar arrangements or
strategic partnerships approved by the board; and (vii) the
provision of goods or services pursuant to transactions approved
by the board.

Voting rights: General: Preferred will vote (on an as-converted

basis) with the Common Stock, except as provided herein or
required by law.

Directors: So long as [__________] shares2 of the Preferred are

outstanding (i) the Preferred will be entitled to elect one director;
(ii) the Class F Common Stock will be entitled to elect the Class F
Director (as defined in the Company’s certificate of
incorporation); and (iii) the remaining director(s) will be elected
by the Preferred and Class F Common Stock voting together.

Protective provisions: So long as [__________] shares3 of the

Preferred are outstanding, consent of at least 50% of the then-
outstanding Preferred will be required to (i) alter the certificate of
incorporation if it would adversely alter the rights of the
Preferred; (ii) change the authorized number of Preferred Stock;
(iii) authorize or issue any senior or pari passu security; (iv)
approve a merger, asset sale or other corporate reorganization or
acquisition; (v) repurchase Common Stock, other than upon
termination of a consultant, director or employee; (vi) declare or
pay any dividend or distribution on the Preferred Stock or
Common Stock; or (vii) liquidate or dissolve.

INVESTOR RIGHTS
 Information rights: Holders of Preferred will receive unaudited
annual and quarterly financials and annual business plan until an
IPO or change of control.

Registration rights: Demand registration: Two demand rights

after the earlier of (i) five years following the financing or (ii) 180
days following the IPO.

“Piggyback” registration: Customary “piggyback” rights on

Company registrations, subject to underwriter cutback.

S-3 rights: Two per year (if available), with minimum offering
price requirement of $1,000,000.

Termination: These rights expire on the earlier of (i) the date on

which all shares may be sold by the holder under Rule 144 during
any 90-day period or (ii) three years after an IPO.

Market stand-off: 180 days after an IPO with booster shot.

Preemptive rights: Holders of Preferred will have a right to

purchase pro rata share of any offering of new securities by the
Company, subject to customary exceptions. Pro rata share will be
determined based on the Company’s fully-diluted capitalization
(on an as-converted and as-exercised basis). Right will terminate
on an IPO or change of control.

Right of first refusal

and co-sale agreement: The Company will have a right of first

refusal on transfer of Company shares by [insert name of
Founder(s)] (the “Founders”). If the Company does not exercise
this right, holders of Preferred will have a right of first refusal and
a co-sale right, subject to customary exceptions.

Voting agreement: Customary voting agreement including

provisions agreeing to elect the following individuals to the board
(i) one representative designated by [____________] (the
“Preferred Director”); (ii) one representative designated by the
holders of Class F Common Stock as the Class F Director; and
(iii) one representative mutually agreeable to the Preferred
Director and the Class F Director.

OTHER MATTERS

Option pool: The number of shares of Class A Common Stock

reserved for issuance under the Company’s equity incentive plan
will be increased to a new total of [_________] shares.4
 Founder Vesting: Upon a Change of Control, all then-unvested
shares of Class F Common Stock purchased by each Founder
shall immediately vest and become exercisable.

A “Change of Control” shall mean (i) the acquisition of the

Company by another entity by means of any transaction or
series of related transactions (including, without limitation,
any reorganization, merger or consolidation or stock
transfer, but excluding any such transaction effected
primarily for the purpose of changing the domicile of the
Company), unless the Company’s stockholders of record
immediately prior to such transaction or series of related
transactions hold, immediately after such transaction or
series of related transactions, at least 50% of the voting
power of the surviving or acquiring entity (provided that the
sale by the Company of its securities for the purposes of
raising additional funds shall not constitute a Change of
Control hereunder); or (ii) a sale of all or substantially all of
the assets of the Company.

Expiration date: These terms are valid until, and will expire on,
[___________].5

(Signature page follows)

This Memorandum of Terms may be executed in counterparts, which together will constitute one
document. Facsimile signatures shall have the same legal effect as original signatures.

[INSERT COMPANY NAME] [INSERT NAME

OF INVESTOR]

Signature Signature

Print name Print name

Print title Print title

Date Date
 TheFunded Founder Institute - Notice

This sample Memorandum of Terms has been prepared by Wilson Sonsini Goodrich & Rosati for informational purposes
only and does not constitute advertising, a solicitation, or legal advice. Neither the transmission of this sample
Memorandum of Terms nor the transmission of any information contained in this website is intended to create, and receipt
hereof or thereof does not constitute formation of, an attorney-client relationship. Internet subscribers and online readers
should not rely upon this sample Memorandum of Terms or the information contained in this website for any purpose
without seeking legal advice from a licensed attorney in the reader’s state.

The information contained in this website is provided only as general information and may or may not reflect the most
current 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 necessarily endorse, and is
not responsible for, any third-party content that may be accessed through this website.

EXHIBIT: CAPITALIZATION TABLE

1
This sample Memorandum of Terms was designed to be used in conjunction with standard Founder Institute charter
documents, which include Class A Common Stock and Class F Common Stock. This sample Memorandum of Terms
will need to be appropriately customized for each end-user’s application, including but not limited to replacing
references to “Class A Common Stock” and “Class F Common Stock” to “Common Stock,” if appropriate.

2
Equal to 25% of the aggregate number of Preferred shares issued in the financing.

3
Equal to 25% of the aggregate number of Preferred shares issued in the financing.

4
Total number of shares reserved under the option pool to be no greater than 20% of the fully-diluted capitalization of
the Company post-money.

5
30 days after the date first set forth above.