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”)
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”).
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.
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.
Documents: Counsel to Company shall draft form of Notes.
Closing Conditions: Closing subject to execution of definitive legal documents