Texas 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.

A Texas Term Sheet — Royalty Payment Convertible Note is a legal agreement used in financial transactions, most commonly in the context of startup funding and venture capital. This document outlines the key terms and conditions surrounding an investment, particularly when it involves royalties and conversion into equity. In Texas, there are several types of Term Sheets — Royalty Payment Convertible Notes that can be used based on the specific needs and circumstances of the parties involved. Some commonly seen types include: 1. Equity Conversion Note: This type of note allows the investor to convert the loan amount plus any accrued interest into equity at a future date, usually upon the occurrence of specified events such as an IPO or acquisition. 2. Revenue Royalty Note: This note structure entitles the investor to receive a portion of the company's revenue instead of equity conversion. The royalty payment is typically a percentage of the company's gross revenue, providing a steady stream of income to the investor. 3. Hybrid Convertible Note: This type of note combines elements of both equity conversion and revenue royalties. It allows the investor to choose between converting the investment into equity or receiving royalties, based on predetermined terms. 4. Pre-Seed Convertible Note: Specifically designed for early-stage startups, this type of note provides a loan to the company before an official fundraising round. It often contains favorable terms, such as a lower valuation cap and discount rate, to incentivize early investment. A Texas Term Sheet — Royalty Payment Convertible Note includes several essential sections: 1. Investment Amount: Specifies the total investment amount and the currency in which it will be made. 2. Royalty Percentage: States the percentage of revenue that will be paid to the investor as royalties, if applicable. 3. Valuation Cap: Sets a maximum valuation at which the loan can be converted into equity. 4. Discount Rate: Offers a discount to the investor when converting the loan to equity, incentivizing early investment. 5. Conversion Conditions: Defines the events or triggers upon which the investor can convert the loan into equity. 6. Interest Rate: Determines the interest rate, if any, that will be charged on the loan amount until conversion or maturity. 7. Maturity Date: Specifies the date on which the loan amount, along with any accrued interest, must be repaid if not converted into equity. Overall, a Texas Term Sheet — Royalty Payment Convertible Note serves as a crucial preliminary agreement between the company seeking investment and the potential investor, providing a framework for further negotiations and the eventual funding of the business venture.