Colorado Term Sheet - Royalty Payment Convertible Note

• Category: Corporations - Startup - Venture Financing Process
• State: Multi-State
• Control #: US-ENTREP-0049-1
• Format: Word; Rich Text

Description

This Term Sheet summarizes the principal terms with respect to a potential private placement of equity securities of a "Company") by a group of investors ("Investors") led by a Venture Fund. This Term Sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation except as provided under "Confidentiality," "Exclusivity", and "Expenses" below. No other legally binding obligation will be created, implied or inferred until a document in final form entitled "Stock Purchase Agreement" is executed and delivered by all parties. Without limiting the generality of the foregoing, it is the parties intent that, until that event, no agreement shall exist among them and there shall be no obligations whatsoever based on such things as parol evidence, extended negotiations, "handshakes," oral understandings, courses of conduct (including reliance and changes of position), except as provided under "Confidentiality," "Exclusivity", and "Expenses" below.

The Colorado Term Sheet — Royalty Payment Convertible Note is a legal document that outlines the terms and conditions for a financing agreement between an investor and a startup company based in Colorado. This unique type of convertible note combines the features of a royalty payment arrangement with a convertible debt structure, providing investors with the potential for both ongoing royalty payments and the option to convert their investment into equity shares at a later stage. The Colorado Term Sheet — Royalty Payment Convertible Note typically includes various key elements such as: 1. Investment Amount: Specifies the total amount of investment committed by the investor. 2. Conversion Terms: Outlines the conditions under which the investor can convert their debt into equity shares of the company. 3. Royalty Payment Terms: Details the terms of the royalty payment arrangement, including the percentage of revenue or profits that the company will pay to the investor on a periodic basis. 4. Interest Rate: States the interest rate that will apply to the outstanding debt amount, which may accrue until conversion or repayment. 5. Maturity Date: Specifies the date on which the convertible note matures, requiring repayment of the principal or conversion into equity. 6. Liquidation Preference: Defines the priority of payment to the investor in the event of a liquidation or sale of the company. 7. Use of Funds: Outlines how the invested funds will be used by the company, providing clarity and transparency to the investor. It is important to note that there might be some variations or different types of Colorado Term Sheet — Royalty Payment Convertible Notes based on specific agreements or investor preferences, such as: 1. Fixed Royalty Convertible Note: In this variation, the royalty payments are fixed at a specific amount or percentage and do not vary based on the company's performance. 2. Variable Royalty Convertible Note: In contrast to a fixed royalty note, this type allows the royalty payments to fluctuate based on the company's revenue or profit performance. 3. Accelerated Conversion Convertible Note: This type provides the investor with the option to convert their debt into equity at an accelerated rate, typically triggered by specific milestone achievements or determined timelines. 4. Discounted Conversion Convertible Note: With this variation, the investor receives a discount on the conversion price when converting debt into equity, incentivizing early conversion. The Colorado Term Sheet — Royalty Payment Convertible Note serves as a crucial legal document for both the investor and the startup company, defining the terms of the financing agreement and ensuring a clear understanding of the expectations and obligations of both parties.