This is an outline of a term sheet for a bridge note. I thought I'd post this so people could see a real life example. I'm no lawyer so don't just copy and use...or if you do -- copier beware. Also, this will probably be my last post on bridge notes for a while....I'm going to move onto other topics :-)
Issuer:
XXX Corporation (“Company)
Investors:
Accredited Investors acceptable to the Company which will invest a minimum of
$25,000 (unless otherwise approved by the Company) (“Investors”)
Type
of Security: Debt convertible (“Notes”) into the same stock class, share price
and terms as the next round of equity investment of a minimum of $2,000,000,
including conversion of this bridge financing (a “Financing”).
Note
Provisions
Amount
of Investment: Up to $500,000, subject to increase at the discretion of the
Company.
Closing: Month XX, 2007 Term: 12 months from the date of issuance of the first Note
(“Maturity”).
Conversion:
Principal and accrued interest automatically converts if closing of next round
of Financing occurs on or before Maturity, at a price equal to the price
established in the transaction, minus a 25% discount; provided, that if the
Company valuation immediately prior to the Financing exceeds $12M, then such
discount shall be the greater of 25% or that discount which is needed to result
in the Investors converting at a $12M pre-financing valuation.
If
the Company is acquired prior to Maturity or the next Financing, then the
principal and accrued interest automatically converts into Common Stock at a
price equal to the price established in the transaction, minus a 25% discount;
provided that if the Company acquisition valuation exceeds $12M, then such
discount shall be the greater of 25% or that discount which is needed to result
in the Investors converting at a $12M acquisition valuation.
If the
Company fails to obtain a Financing by Maturity or the Company is not acquired
prior to Maturity or the next Financing, and the Note remains outstanding at
Maturity, the Company
shall have the option to repay the Note in full or to convert the Note into
Common Stock at a $4M preconversion Company valuation.
Interest:
Interest to be computed and accrued on the principal at an annual rate of 10%
until debt is converted or paid. Interest will be payable at Maturity, either
in cash or equity, at the option of the Company.
Additional
Note Terms: Company may not prepay the Note prior to Maturity. Payment after
Maturity is upon ten days prior notice to Investor.
The
Notes are unsecured.
The
Notes will be subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness. Senior Indebtedness consists of any
existing and future commercial bank lines and equipment lease lines, along with
such additional or replacement commercial loans and equipment leases that are
subsequently approved by the Board of Directors.
Other
Matters
Documents:
Counsel to Company shall draft form of Notes.
Closing
Conditions: Closing subject to execution of definitive legal documents
