Example of Term Sheet

 

Rights, Preferences,                            :        (1)     Dividend Provisions

Privileges and Restrictions                                   The holders of the Preference shall be entitled to 

of Preference Shares                                             receive cumulative dividends when, as and if declared by the Board of Directors.

 

                                                                        (2)     Liquidation Preference

                                                                                    In the event of any liquidation or winding up of the Company, the holders of the Preference shall be entitled to receive in preference to the holders of Ordinary an amount equal to $[ cost + 15% p.a. ]  per share.  After payment of such sum the holders of the Preference and the Ordinary shall participate pro-rata in the remaining proceeds.  A consolidation or merger of the Company or sale of all or substantially all of its assets shall be deemed to be a liquidation or winding up for purposes of the liquidation preference.

 

                                                                        (3)     Conversion

                                                                                    The holders of the Preference shall have the right to convert the Preference, at the option of the holder, at any time, into Ordinary shares of the Company.  One share of Preference shall initially be convertible into ….. (??) Ordinary share (see Antidilution Provisions).

 

                                                                        (4)     Automatic Conversion

                                                                                    The Preference shall be automatically converted into Ordinary at the then applicable conversion rate, in the event of an underwritten public offering of shares of the Company at a public offering price per share not less than 175% (??) of the Preference purchase price per share and for a total offering of not less than US$AA million.

 

                                                                        (5)     Antidilution Provisions

                                                                                    The conversion price of the Preference shall be subject to adjustment to prevent dilution in the event that the Company issues additional shares (other than the Incentive Shares defined in Overview of Terms) at a purchase price not less than the applicable conversion price.

 

                                                                        (6)     Voting Rights

                                                                                    The holder of each share of Preference shall have the right to that number of votes equal to the number of shares of Ordinary issuable upon conversion of the Preference.  With regard to the election of directors, the holders of the Preference, voting as a separate class, shall be entitled to elect (2) out of a total of 3 directors.

 

                                                                          (7)     Protective Provisions

                                                                                    The unanimous consent of the holders of the Preference shall be required for any action which

                                                                                      (i)      amends or repeals any provision of the Company's Articles of Incorporation or By-Laws if such action would alter or change the designations, preferences and relative, participating, optional and other special rights, or the restrictions provided for the benefit of the Preference,

                                                                                      (ii)     authorizes issues of shares of any class of stock having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Preference,

                                                                                  (iii)    pays or declares any dividend on any junior securities, or

                                                                                  (iv)   authorizes a merger, sale of substantially all the assets, consolidation, recapitalization or reorganization of the Company.

 

Redemption Rights                           :        Upon proper notice by the holders of the Preference, the Company shall be obliged to redeem all or any part of the Preference by paying a redemption price of US$(cost + 15% p.a. compounded) per share at any time.  In the case of full redemption, the Company will have the option to redeem in 4 equal bi-annual instalments.

 

IPO Rights                                          :        (1)   Demand Rights

                                                                                If investors holding at least 50% of the Preference (or Ordinary issued upon conversion of the Preference or a combination of such Ordinary and Preference) request that the Company effect an Initial Public Offering ("IPO") of shares, the Company will use its best efforts to do so.

 

                                                                        (2)   Expenses

                                                                                The expenses (exclusive of underwriting discounts and commissions) of an IPO shall be borne by the Company.

 

                                                                        (3)   Other Provisions

                                                                                Other provisions shall be contained in the Subscription Agreement with respect to IPO rights as are reasonable, including cross-indemnification, the period of time in which the IPO shall be completed, underwriting arrangements and the TELE.

 

Right of First Refusal                      :        So long as an investor is a holder of Preference or Ordinary, if the Company proposes to offer any shares (other than the Incentive Shares, shares issued in the acquisition of another company, or shares offered to the public pursuant to an underwritten public offering), the Company will first offer such shares to such investors on a pro-rata basis in accordance with each investor's proportional share of the outstanding Capital Stock.

 

Debt Covenant                                   :        The Company shall covenant not to borrow in excess of US$1 million annually without the written consent of the Preference Shareholders.

 

Information Rights                           :        So long as an investor holds [ 100 ] Preference Shares the Company will furnish the investor with monthly financial statements, annual financial statements audited by an accounting firm of national reputation, and an annual budget; provided, however, that these obligations shall terminate upon a public offering of the Ordinary.