Term Sheets: Control Terms
- EBoard of Directors
- EProtective Provisions
- EDrag-Along Right
- EConversion Right
- ERight of First Refusal
- EVoting Rights
- ERestrictions on Sales
Board of Directors
……….. In 2021, startups had a medium of 5 directors on the board of directors after a Series A round.
Board of Directors: At the Closing, the Board of Directors shall consist of [ ] members comprised of (i) [name] as [the representative designated by [ ], as the lead Investor, (ii) [name] as the representative designated by the remaining Investors, (iii) [name] as the representative designated by the Common Stockholders, (iv) the person then serving as the Chief Executive Officer, and (v) [ ] person(s) who are not employed by the Company and who are mutually acceptable [to the other directors].
Protective Provisions: So long as [ ] shares of Series A Preferred issued in the transaction are outstanding, in addition to any other vote or approval required under the Company’s Charter or Bylaws, the Company will not, without the written consent of the Requisite Holders, either directly or by amendment, merger, consolidation, recapitalization, reclassification, or otherwise: . . . .
[Drag Along: Holders of Preferred Stock and all current and future holders of greater than [ ]% of Common Stock (assuming conversion of Preferred Stock and whether then held or subject to the exercise of options) shall be required to enter into an agreement with the Investors that provides that such stockholders will vote their shares in favor of a Deemed Liquidation Event or transaction in which 50% or more of the voting power of the Company is transferred and which is approved by [the Board of Directors and] the Requisite Holders [and holders of a majority of the shares of Common Stock then held by employees of the Company (collectively with the Requisite Holders, the “Electing Holders”), so long as the liability of each stockholder in such transaction is several (and not joint) and does not exceed the stockholder’s pro rata portion of any claim and the consideration to be paid to the stockholders in such transaction will be allocated as if the consideration were the proceeds to be distributed to the Company’s stockholders in a liquidation under the Company’s then-current Charter, subject to customary limitations.].]
Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid as follows:
[Alternative 1 (non-participatingPreferred Stock): First pay [ times] the Original Purchase Price [plus accrued and] declared and unpaid dividends] on each share of Series A Preferred (or, if greater, the amount that the Series A Preferred would receive on an as-converted basis). The balance of any proceeds shall be distributed pro rata to holders of Common Stock.]
Voting Rights: The Series A Preferred shall vote together with the Common Stock on an as-converted basis, and not as a separate class, except (i) so long as [ ] of the shares of Series A Preferred issued in the transaction are outstanding, the Series A as a separate class shall be entitled to elect [ ] [(_)] members of the Board of Directors([each a] “Preferred Director”), (ii) as required by law, and (iii) as provided in the “Protective Provisions” below. The Company’s Charter will provide that the number of authorized shares of Common Stock may be increased or decreased with the approval of a majority of the Preferred and Common Stock, voting together as a single class, and without a separate class vote by the Common Stock.
Right of First Refusal
Restriction on Sales
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