Startup Newco, Inc. Series A Participating Preferred Stock David Rieveschl Baker Donelson David...

Startup Newco, Inc.Series A Participating Preferred Stock

David RieveschlBaker Donelson

David CusimanoGoldman Sachs 10,000 Small Businesses

Chris SloanBaker Donelson

Clayton WhiteSouth Coast Angel Fund

2www.bakerdonelson.com© 2014 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

Players

Founder of Startup Newco, Inc., an emerging company with a new battery technology that could effectively double the fuel efficiency of a hybrid engine.

Attorney representing Startup Newco.

Managing Partner of BigMoney VC Fund I, a venture capital partnership.

Attorney representing Big Money.

David Cusimano

David Rieveschl

Clayton White

Chris Sloan


Background

• BigMoney has committed to an investment in Startup Newco at a $2,500,000 pre‑money valuation, subject to agreement on legal terms. BigMoney will invest $750,000 of its own money and will act as lead investor in a proposed $1,000,000 financing.

• Clayton White believes the valuation is too high, but he agreed to it in order to get the deal. Because of the high valuation, Clayton has presented Startup Newco with a tough set of legal terms. The proposed term sheet is attached.

• Clayton is very excited about Startup Newco's new battery technology, but he is not sure that David Cusimano is the right person to lead the company.

• David Cusimano is inexperienced at raising venture capital. He was pleasantly surprised that Clayton agreed to the $2,500,000 pre-money valuation and does not want to lose the benefit of that deal.

• David Rieveschl has a long working relationship with David Cusimano and believes the term sheet needs major revisions to be acceptable. He is hoping that Chris Sloan is responsible for the tough set of terms and that Clayton will be quick to back away from some of the more onerous provisions.

• Chris Sloan has done many deals for BigMoney and, therefore, is not surprised by the tough set of terms.


Startup Newco, Inc.

Series A Participating Preferred Stock

Term Sheet

March 28, 2014


Term Sheet

•Startup Newco, Inc. (the "Company").

Issuer

•BigMoney VC Fund I ("BigMoney") and other investors (collectively, the "Purchasers") mutually agreed to by BigMoney and the Company. All of the Purchasers will be "accredited investors" as defined in Rule 501 of Regulation D issued pursuant to the Securities Act of 1933, as amended, as approved by the Company.

Purchasers

•Series A Participating Preferred Stock (the "Preferred A Stock").

Security

•$1,000,000 as follows:

Amount

BigMoney (and affiliates)* $750,000Other Investors $250,000 Total $1,000,000

*BigMoney will adjust its investment amount in order to accommodate additional investors if approved by both BigMoney and the Company.


Term Sheet

•The purchase price of the Preferred A Stock will be calculated based on a fully-diluted, pre-money valuation of $2,500,000. The company will issue 1,000,000 shares of Preferred A Stock at a price of $1.00 per share.

Purchase Price

•Working Capital to allow for the growth and maturation of the Company.

Use of Proceeds

•Subject to the satisfaction of the conditions set forth herein, the closing of the sale of the Preferred A Stock is anticipated to occur on April 30, 2014, or as soon as practicable thereafter upon completion of due diligence and documentation (the "Closing Date").

Closing Date

•The Closing shall be contingent on the following conditions, each of which must be met to each Purchaser's satisfaction:

1. The Purchasers will have completed their due diligence investigation, including legal, financial, and technical due diligence;

2. The Documentation (as defined below) will be in form mutually acceptable to the Company and the Purchasers; and3. No material adverse change shall have occurred with respect to the Company.

Closing Conditions


Term Sheet


Term Sheet

Except with respect to the sections labeled "Expenses" and "Confidentiality," this term sheet merely constitutes a statement of our mutual intentions with respect to the proposed transaction and is not intended to be, should not be construed as being, and is not, a legally binding contract. This term sheet does not contain all matters upon which agreement must be reached in order for the proposed transaction to be consummated and, therefore does not constitute a binding commitment with respect to the proposed transaction and it shall not be construed as creating, except as set forth in the sections labeled "Expenses" and "Confidentiality," any legal rights or remedies.


Startup Newco, Inc.

Pro-Forma Capitalization Table


Pro-Forma Capitalization Table

* Note that an option pool is often included in these transactions, but has been left out of this particular term sheet in the interest of time.


Total Sale Price $1,000,000 $2,000,000 $4,000,000 $8,000,000 $16,000,000 $32,000,000 $64,000,000

Preferred A Liquidation Principal $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000Preferred A Liquidation Dividend $0 $250,000 $250,000 $250,000 $250,000 $250,000 $250,000Remaining Distribution for All Shareholders $0 $750,000 $2,750,000 $6,750,000 $14,750,000 $30,750,000 $62,750,000

Remaining Distribution per Shareholder: Jerry Lenaz $0 $321,450 $1,178,650 $2,893,050 $6,321,850 $13,179,450 $26,894,650 Other Founders $0 $214,275 $785,675 $1,928,475 $4,214,075 $8,785,275 $17,927,675 Series A Preferred $0 $214,275 $785,675 $1,928,475 $4,214,075 $8,785,275 $17,927,675

Total Distribution to Series A Preferred $1,000,000 $1,464,275 $2,035,675 $3,178,475 $5,464,075 $10,035,275 $19,177,675

Assumptions: 1. All 1,000,000 shares of Preferred A Stock were sold.2. None of the shares of Preferred A Stock have been converted to Common Stock.3. No dividends have been paid on the Preferred A Stock.4. The conversion price of the Preferred A Stock has not changed.5. No additional shares of capital stock of the Company have been issued.

Hypothetical Sale in 5 YearsHypothetical Sale in 5 Years

Total Sale Price $1,000,000 $2,000,000 $4,000,000 $8,000,000 $16,000,000 $32,000,000 $64,000,000

Preferred A Liquidation Principal $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000Preferred A Liquidation Dividend $0 $250,000 $250,000 $250,000 $250,000 $250,000 $250,000Remaining Distribution for All Shareholders $0 $750,000 $2,750,000 $6,750,000 $14,750,000 $30,750,000 $62,750,000

Remaining Distribution per Shareholder: David Cusimano $0 $321,450 $1,178,650 $2,893,050 $6,321,850 $13,179,450 $26,894,650 Other Founders $0 $214,275 $785,675 $1,928,475 $4,214,075 $8,785,275 $17,927,675 Series A Preferred $0 $214,275 $785,675 $1,928,475 $4,214,075 $8,785,275 $17,927,675

Total Distribution to Series A Preferred $1,000,000 $1,464,275 $2,035,675 $3,178,475 $5,464,075 $10,035,275 $19,177,675

Assumptions: 1. All 1,000,000 shares of Preferred A Stock were sold.2. None of the shares of Preferred A Stock have been converted to Common Stock.3. No dividends have been paid on the Preferred A Stock.4. The conversion price of the Preferred A Stock has not changed.5. No additional shares of capital stock of the Company have been issued.

Startup Newco, Inc. Series A Participating Preferred Stock David Rieveschl Baker Donelson David...

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