NEWCO, INC.
SERIES B CONVERTIBLE PREFERRED STOCK FINANCING TERM SHEET
This Term Sheet summarizes the principal terms under which Newco (the “Company”) will sell up to $9.0 million of its
Series B Preferred Stock to Palomar Ventures and other approved co-investors (the “Investors”).
Investors:
Palomar Ventures
Co-investors
Series A investor
Total
Post-Closing
Capitalization:
$3.00 million
$5.75 million
$0.25 million
$9.00 million
Set forth below is the pro forma capitalization of the Company on a fully diluted basis assuming
a financing issuance of 8,100,000 shares of Series B Convertible Preferred Stock at $1.11111 per
share.
# Shares
Common
Shareholder
Palomar Ventures
Co-investor
Strategic Investor(s)
Founder A
Founder B
Brobeck
Other Founders
Options available
Total
Series A
Series B
# Shares
Preferred
# Shares
Preferred
# Shares
Com. Eqv.
%
Shares
2,500,000
2,700,000
2,700,000
2,250,000
225,000
2,700,000
2,700,000
2,250,000
2,725,000
2,500,000
225,000
2,000,000
2,900,000
18,000,000
15.00%
15.00%
12.50%
15.14%
13.89%
1.25%
11.11%
16.11%
100.00%
2,500,000
225,000
2,000,000
2,900,000
7,400,000
________
2,500,000
_________
8,100,000
Valuation:
Pre-money:
Post-money:
$11.0 million
$20.0 million
Use of Proceeds:
Proceeds received at the Closing shall be used to fund the Company’s working capital
requirements.
Option Pool:
The option pool will be refreshed prior to the Series B investment so that the available option
pool post Series B is equal to 16.11% of the company’s total stock allocation.
Closing:
September 29, 2000 or as soon as possible. The closing is subject to completion and execution
of all final documentation and completion by the Investors of their accounting, legal, and
business due diligence satisfactory to the Investors, in their sole and absolute discretion.
Liabilities:
Current liabilities at the time of Closing shall not exceed an amount to be mutually agreed upon
between the Investors and the Company and all contractual commitments by the Company shall
have been disclosed to the Investors prior to Closing and shall be deemed satisfactory and
acceptable by the Investors.
Board of Directors:
The Board of Directors of the Company shall consist of five directors as follows: (a) one
director selected by the Series A Stock; (b) two directors selected by the Series X Stock; (c) one
director selected by the Common Stock; and (d) one outside director with industry experience
selected at a later date by the Common Stock and the Preferred Stock voting as a single class.
The strategic investor(s) shall not be entitled to a board seat.
Newco, Inc.
Term sheet for Series X Preferred
August 25, 2000
1
The initial members of the Board of Directors shall be:
Founder A – Chairman, Newco and Series A investor
Founder B – CEO/President, Newco
George Abe – Venture Partner, Palomar Ventures
TBD – Series B Co-investor
The Company agrees to fully indemnify all directors to the maximum extent permitted by
applicable law.
Vesting of Outstanding
Common Stock:
Expenses:
Current outstanding Common Stock held by Founder B, Founder C and to be issued to
employees in the future, would vest as follows unless covered by a separate agreement: After 12
months of employment, 25% would vest; the remainder would vest monthly over the following
36 months. Repurchase option on unvested shares at cost. If a founder’s employment is
terminated without cause (as such term will be defined in such founder’s respective employment
agreement), 50% of all unvested stock would accelerate and become immediately vested.
Newco shall bear its own legal fees and other expenses with respect to the transaction and shall
pay for all reasonable fees and expenses of the Investors in the transaction. Disbursements of a
single special legal counsel for the Investors upon closing shall not exceed $20,000.
The following standard items will be covered in detail in the Series B definitive agreement documents, which will be based
in part on the existing Series A definitive agreement documents and shall be customary for transactions of this type.
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Liquidation Preference (2X)
Participating Preferred
Anti-dilution Provisions (weighted average)
Dividends (7%, non cumulative)
Redemption (5, 6 and 7 years, subject to Board approval)
Automatic Conversion at a $20 million or greater IPO
Protective Covenants
Registration Rights
Right of First Offer
Right of First Refusal and Right of Co-Sale
This Term Sheet is not intended to be and does not constitute a legally binding obligation of the parties. No legally binding
obligations on the parties will be created, implied or inferred until documents in final form are executed and delivered by all
parties
Newco, Inc.
____________________________________
By: Founder B, CEO
Palomar Ventures I, L.P.:
By: Palomar Management Partners, LLC
Its General Partner
____________________________________
By: George Abe, Venture Partner
Newco, Inc.
Term sheet for Series X Preferred
August 25, 2000
2