TERMS OF THE PREFERRED
Liquidation preference: The Preferred have a prior claim to thecompany’s assets in the event of liquidation
Conversion: The preferred reserves the right to be converted into acommon shareholder
Automatic Conversion: Each of the shares held by the preferred willautomatically be converted into the common shares at the applicableconversion rate upon the closing of an underwritten initial publicoffering (IPO) of common shares or the consent of the majority holderof the outstanding preferred shares
General voting rights: Preferred shares have voting rights similar tothose of common shares on all matters based on the conversion rate.
Information Rights: Each investor is entitled to inspect thecompany’s financial statements
Protective Provisions: The consent of the preferred will be requiredfor any action that alters the company’s legal documents thatgovern the relationships between its stakeholders
Pre-emptive Rights (to maintain proportionate ownership): Each majorinvestor reserves the right to purchase the company’s pro-ratashare of any offering of new securities
Co-Sale Rights: Shareholders are banned from selling their shares toa third party, unless the third party offers to buy the investor’sshares on the same terms.
Election of Directors: The preferred should have a representative(Investor nominee) on the board of directors.
Sale Transaction: A sale transaction includes mergers, amalgamations,reorganization, consolidation and any other transaction that entailsthe transfer of ownership of the company’s assets to third parties.
Optional Pool: The number of Common Shares reserved for issuanceunder the Corporation’s stock option plan will be increased toequal a certain percentage of shares outstanding after issuance ofthe Preferred to Investors.
Share purchase agreement: The Investors and Corporation will enterinto a share purchase agreement containing standard representationsand warranties, with a given survival period.
Founder matters: Each Founder shall have transferred all relevantintellectual property to the Company, entered into an employmentagreement with the Company and signed agreements with respect tovoting and vesting their Founders shares over an agreed term of acertain number of years, with the terms of such agreements satisfyingthe to Investors prior to Closing Date..
Expenses and fees: The Corporation will reimburse counsel toInvestors for legal fees and disbursements, up to a certain maximumlimit.
Expiration Indicates the date before which these terms arevalid.
Binding Terms: The Company agrees not to solicit offers from otherparties for any financing for thirty days.