TERM SHEET FOR INVESTMENT IN [INVESTEE] LIMITED

Transcription

1 TERM SHEET FOR INVESTMENT IN [INVESTEE] LIMITED This Term Sheet summarises the principal terms of the proposed investment by Invest Growth Fund LP (the Fund or the Lead Investor ) acting by its manager, E-Synergy Limited (the Fund Manager ) in [Newco] Limited (the Company ) Company: Founders [or Existing Shareholders - if there are already shareholders other than the Founders then this definition will need to be changed/added.]: Issued share Capital: Co-Investors Investor(s): [Option Pool: Amount of Investment: Shares Subscribed: Percentage of Company to be owned by Investor and any Co-Investors: Target Completion Date: Conditions Precedent [Investee] Limited. [ ] of [address details], [ ] of [address details] and [ ] of [address details] (each a Founder and together being the Founders ). The current issued share capital is comprised [ ] ordinary shares of [ ] each ( Ordinary Shares ). [ ], [ ] and [ ] (each a Co-investor and together being the Co-investors ). The Lead Investor and the Co-investors together being the Investors. An option pool representing 10% of the share capital postinvestment will be established [immediately prior to/as soon as reasonably practicable following] the Investment (as set out in Appendix A).] Aggregate Investment: [ ], being invested by each of the Investors as set out in Appendix A. [ ] Ordinary Shares at a share price of [ ] (including any share premium) as set out in Appendix A (the Investment ). [ ]% on a fully diluted basis following the Investment [and following the creation of the Option Pool (see Appendix A)] [ ] 20XX. The Investment will be subject to contract and also subject to the following conditions being met to the satisfaction of the Fund Manager: the results of the commercial, financial and legal due diligence; completion and return of directors declarations and associated documents, including identification documentation required for anti-money laundering purposes; such documentation to be provided for all directors and for shareholders with more than 10% of the share capital; match funding of a minimum of 30% of the funding

2 Share Capital: Anti-Dilution Rights Priority Payment on Exit: Important Decisions: round from eligible private sources; a business plan to be finalised and agreed with the Fund Manager; the most recent management accounts at the time of completion of the Investment, being no older than six weeks; Service Agreements and Employment Contracts with the Founders and the Company s staff respectively; suitable directors and officers insurance; the Company obtaining keyman insurance on the lives and health of YY and ZZ in the amount of XX and otherwise on terms to be agreed, but with the Company as the beneficiary; granting of assignments of all relevant intellectual property by the Founders and team members in favour of the Company; final approval of the Fund Manager s Investment Committee; and the Company providing the Fund Manager with all information necessary to meet its reporting requirements in respect of the Fund. Immediately following completion of the Investment, the share capital of the Company shall be constituted as set out in Appendix A. The Investors will be afforded anti-dilution rights to cover them in the event the Company issues shares in the future at a price lower than the amount per share the Investors are paying. The funds available for distribution to shareholders pursuant to any sale of the Company s share capital, of substantially all of the assets of the Company or upon any winding-up (whether following an asset sale, a solvent winding up or any insolvency proceedings) (the Proceeds ) will be adjusted as between all shareholders to ensure the following application of the Proceeds: If the Proceeds are equal to or less than sufficient to ensure that the Investors receive the amount originally paid by them for each share (the Original Subscription Price ), then the Proceeds shall be allocated pro rata to the Investors according to the relevant Original Subscription Price paid by them. If the Proceeds are more than sufficient to ensure that all the Investors receive the amount originally paid by them for each share (the Original Subscription Price ), then the Proceeds shall be allocated pro rata between all shareholders according to the number of shares held by them. The consent of the Fund Manager/holders of 75% of the Ordinary Shares held by the Investors (an Investor Majority ) shall be required for the important decisions, substantially in the form listed in Appendix B.

3 Board and Information Rights: Further Issue of Shares: Pre-emption and Tag Along and Drag Along: Leaver Provisions: The Lead Investor/Fund Manager shall be entitled to appoint a non-executive director (the Investor Director ) and an observer to attend all meetings of the Board. For a Board Meeting to be quorate any Investor Director appointed must be present unless he agrees otherwise. The Company will be required to provide the Investors with regular information including audited annual accounts, monthly management accounts, an annual budget and an annual presentation of the Company s business plan. All shareholders shall have a pro rata right to participate in subsequent equity financings of the Company (save for customary exceptions). All shareholders will have a right of first refusal on a pro rata basis to acquire any equity proposed to be sold by any other shareholder of the Company (subject to usual exceptions). The Founders shall require Investor consent to sell shares. The Investors shall benefit from tag along rights in the event of a sale of shares which would result in any party gaining control of 25% or more of the entire issued share capital of the Company. In other words, those shares may not be transferred unless that party also offers to purchase all the remaining shares of all shareholders at the same price and on the same terms. A majority of Investors shall benefit from drag along rights to require all shareholders to sell their shares at the same price and on the same terms. [In the event that a Founder leaves the Company within three (3) years of Completion, a proportion of his shares shall be subject to compulsory transfer. The Founder s shares shall vest on a monthly basis over a three (3) year period, with one twelfth (1/12) of such holding becoming exempt from such compulsory transfer after each calendar quarter of continuous service. In the event that a Founder leaves the Company within three (3) years of Completion for Cause, all of his shares shall be subject to compulsory transfer. Any shares that are subject to compulsory transfer shall be transferred at nominal value. "Cause" means the Founder's (a) gross negligence, gross misconduct or a material or repudiatory breach of the terms of his Service Agreement or any other agreement with the Company, including any material breach of obligations to the Company concerning confidentiality or intellectual property or non-compliance with non-compete obligations applicable during the term of the Service Agreement, (b) fraud or acts of dishonesty, (c) being convicted of any criminal offence (other than a road traffic offence which is not punishable by a custodial sentence); or (d) the refusal or failure to substantially perform his duties and responsibilities to the Company lawfully prescribed to him by the Company s Board of Directors after

4 Non-Competition/Non- Solicitation: Warranties: Definitive Documentation: Exclusivity: Expenses: Fees reasonable notice of such failure and a reasonable opportunity to cure such failure.] OR [The Articles of Association of the Company shall contain standard good leaver, bad leaver and early leaver provisions.] An Investment Agreement shall be entered into and shall include non-competition and non-solicitation provisions for each Founder and key employee for the duration of employment or whilst a 10% shareholder and for 12 months thereafter. The Founders and the Company shall be required to provide reasonable joint and several warranties, which shall include: trading history, ownership of share capital and related matters; ownership of intellectual property; capacity to enter into the agreement; and disclosure of material facts relating to the business. The liabilities of the Company will be capped at the total aggregate amount subscribed for by the Investors under the Investment Agreement (including the reasonable legal costs of the Investors). The liabilities of the Founders will be capped at the Aggregate Investment. The Investment will be documented substantially by an Investment Agreement and Articles of Association, provided separately. For a period of [12] weeks from the date of signature of this Term Sheet, the Company, the Founders and any of their respective representatives will not, either directly or indirectly, solicit, initiate or continue discussions or negotiations with any other person regarding an investment of any kind in the Company except where contemplated by this Term Sheet. The Company will pay the legal costs and other fees relating to the Investment including the Fund Manager s solicitor fees [capped at XX]. If the Investment does not complete because the Company withdraws from negotiations with the Lead Investor (except as a result of the Lead Investor making a material change in the terms), the Company shall bear the Lead Investor s costs incurred to that date [capped at 5,000]. On completion of the Investment the Company shall pay the Fund Manager a fee in respect of its management services equal to 5% of the Fund s Investment plus VAT. In consideration of the time and expense devoted and to be devoted by the Lead Investor and the Fund Manager with respect to the Investment, the Exclusivity and Expenses provisions of this Term Sheet shall be legally binding obligations of the Company whether or not the Investment is completed. No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties.

5 This Term Sheet is not a commitment to invest and is conditioned on the completion of legal review and documentation that is satisfactory to both parties. This Term Sheet is governed by [XXXXXXX] law. If the terms of the Investment are acceptable to the Company and the Founders, please sign below and return it to [ ] at [ ] no later than [time] p.m. on [ ] 20[XX]. This Term Sheet may be executed in counterparts and, when so executed, each counterpart, when taken together, shall constitute one and the same original. Print: Sign: Date: For and on behalf of Invest Growth Fund LP (acting by its manager, E-Synergy Limited) Print: Sign: Date: Director, For and on behalf of [Newco] Limited

6 APPENDIX A CAPITALISATION TABLE

7 APPENDIX B IMPORTANT DECISIONS The consent of the holders of a majority of the Ordinary Shares held by the Investors (an Investor Majority ) shall be required for the following important decisions. The Company, and any Group Company, shall not: create any fixed or floating charge, lien (other than a lien as arising by operation of law) or other encumbrance over the whole of any part of its undertaking, property or assets, except for the purpose of securing indebtedness to its bankers for sums borrowed in the ordinary and proper course of the Business and on arm s length terms; give a guarantee or indemnity to secure liabilities or obligations of any person (other than a wholly-owned subsidiary of the Company); other than any expenditure set out in any Approved Business Plan, enter into any Material Contract or purchase, hire, lease or enter into any finance arrangement to acquire any asset for a consideration in excess of 25,000 or, sell, transfer, lease, assign or otherwise dispose of a material part of its undertaking, property, intellectual property or assets (or any interest in them), or contract to do so otherwise than in the ordinary and proper course of the Business; issue any shares or debentures or create any new shares, or issue securities convertible into shares or debentures (except for customary exceptions); issue options from the Option Pool to a Director; alter the rights attaching to any class of shares of the Company; consolidate, sub divide or convert or buy-back any of the Company s share capital; alter the Articles of Association or adopt or pass any resolutions inconsistent with them; do or permit to be done any act or thing whereby the Company may be wound up (whether voluntarily or compulsorily); enter into a contract or transaction except in the ordinary and proper course of the Business on arm s lengths terms; create a contract or obligation or renew or vary the terms of an existing contract or obligation, pay money or money s worth (including by way of declaring or paying a dividend or other distribution) to any Shareholder or to the holding company of any Shareholder or to any other subsidiary of such holding company or to any person as a nominee of any Shareholder or any such holding company or subsidiary; appoint or remove any director of the Company, except in accordance with the rights conferred on the Investors; enter into any employment contract with any Senior Employee or amend the terms of employment of any Senior Employee other than any annual increase in salary of not more than 5% incur any indebtedness exceeding 50,000; instigate, defend, settle or compromise any litigation (other than debt collection in the ordinary course of business);

8 enter into any agreement or arrangement in the nature of partnership, consortium, joint venture (where such joint venture requires the incorporation of a joint venture vehicle or other equity commitment by the Company or any Group Company) or profit sharing arrangement, or the amalgamation with any other person (other than as part of a solvent reconstruction); effect a sale, transfer or disposition of or encumbering any of its intellectual property (other than on an arms-length basis and in the ordinary course of business or pursuant to the terms of the IPR Agreement and/or the IPR Transfer Variation Agreement); enter into a contract to acquire or dispose of all or a material part of any business, including that of the Company; expand, develop or evolve its business otherwise than through the Company or a wholly owned subsidiary of the Company; dispose of or acquire any interest in any share in the capital of any company or incorporate any new subsidiary undertaking. The definitive legal documentation shall also include certain restrictions required by The Fund [as a European Regional Development Fund].