Term sheet for an equity investment
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TERM SHEET FOR PROPOSED EQUITY INVESTMENT
STRICTLY PRIVATE AND CONFIDENTIAL
SUBJECT TO CONTRACT AND DUE DILIGENCE
Company: Company name
CIN: Company's CIN
Registered Office: Registered office address
Investor: Investor name
Investor Address: Investor address
Date of Term Sheet: Date of term sheet
Place: Place of execution
1. INTRODUCTION
1.This Term Sheet ("Term Sheet") sets out the principal terms on which the Investor proposes to invest in the Company. Except for the binding provisions expressly identified in Paragraph 19, this Term Sheet is an expression of intent only, is not a contract, and does not create any obligation on any party to consummate the proposed investment. The definitive binding agreement shall be the Shareholders' Agreement ("SHA") and the Share Subscription Agreement ("SSA") to be executed in due course.
2.This Term Sheet has been prepared pursuant to, and shall be read with, the provisions of the Companies Act, 2013 and the rules made thereunder, including the provisions relating to private placement of securities.
2. PRINCIPAL PARTIES
1.Company: Company name, a company incorporated under the Companies Act, 2013, having CIN Company's CIN and its registered office at Registered office address (the "Company").
2.Promoters/Existing Shareholders: Names of Promoters/Existing shareholders, collectively holding Existing shareholders' aggregate shareholding percentage of the share capital of the Company (the "Promoters").
3.Investor: Investor name, having its address at Investor address (the "Investor").
3. SUMMARY OF PROPOSED TRANSACTION
| No. | Item | Terms |
|---|---|---|
| 1 | Instrument | Equity Shares of the Company |
| 2 | Type of Issue | Private placement |
| 3 | Pre-Money Valuation | INR Pre-money valuation in INR |
| 4 | Investment Amount | INR Investment amount in INR |
| 5 | Number of Shares | Number of shares to be allotted equity shares |
| 6 | Price per Share | INR Price per share in INR (including such share premium as may be decided) |
| 7 | Post-Investment Shareholding of Investor | Investor's post-money shareholding percentage of the post-money share capital |
| 8 | Promoters' Post-Investment Shareholding | Promoters' post-money shareholding percentage of the post-money share capital |
| 9 | Mode of Payment | Mode of payment |
4. CONDITIONS PRECEDENT
1.The investment shall be conditional upon the satisfaction, in the Investor's sole discretion save as otherwise agreed, of the following conditions precedent:
•(a) completion of legal, financial and business due diligence of the Company to the Investor's satisfaction;
•(b) execution of the SHA and the SSA, and of such other documents as the Investor may reasonably require;
•(c) receipt of corporate approvals of the Company, including the approval of the Board of Directors, an ordinary resolution of the shareholders under Section 180(1)(c) of the Companies Act, 2013 (to the extent applicable), and a special resolution for private placement under Section 42 read with Section 62(1)(c) of the Companies Act, 2013;
•(d) circulation of the private placement offer letter and filing of the records of private placement in Form PAS-4 and Form PAS-5 and the return of allotment in Form PAS-3 within the prescribed timelines;
•(e) receipt of all third-party, statutory and regulatory approvals, if any, required for the investment;
•(f) confirmation that the Company is not required to obtain any approval from the Competition Commission of India, or where such approval is required, its receipt;
•(g) where applicable, compliance with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, including pricing guidelines and sectoral conditions;
•(h) the Promoters and the Company having made full disclosure, and there being no material adverse change in the business, assets or condition of the Company between the date hereof and closing;
•(i) Other conditions precedent, if any.
5. CONDITIONS SUBSEQUENT
•(a) filing of such forms and returns with the Registrar of Companies as may be applicable within the prescribed period;
•(b) payment of applicable stamp duty on the SSA and the SHA under the Stamp Act applicable in the State of State governing stamp duty;
•(c) Conditions subsequent, if any.
6. USE OF PROCEEDS
1.The proceeds of the investment shall be applied solely for Use of proceeds, and for no other purpose without the prior written consent of the Investor.
7. BOARD OF DIRECTORS
1.Following the closing, the Board of Directors of the Company shall consist of Total number of directors post-closing directors, constituted as follows:
•(a) Number of promoter-nominated directors director(s) nominated by the Promoters;
•(b) Number of investor-nominated directors director(s) nominated by the Investor, who shall have the right to attend Board meetings and receive notice papers irrespective of whether a nominee director is appointed;
•(c) such independent director(s), if any, as may be agreed.
2.Any change in the composition of the Board shall require the prior written consent of the Investor so long as the Investor holds at least Shareholding threshold for board consent rights of the share capital of the Company.
8. RESERVED MATTERS
1.So long as the Investor holds not less than Shareholding threshold for reserved matters of the share capital of the Company, the Company shall not, without the prior written consent of the Investor, inter alia:
•(a) alter its memorandum or articles of association;
•(b) issue any further shares or securities convertible into or exercisable for shares (other than in accordance with an employee stock option scheme agreed in writing);
•(c) effect any change in the share capital, including buy-back, redemption, split or consolidation;
•(d) declare or pay any dividend, or make any distribution;
•(e) incur, or permit to subsist, any indebtedness in excess of INR Debt threshold in INR;
•(f) create any encumbrance over any of its assets in excess of INR Encumbrance threshold in INR;
•(g) approve any annual budget or any material deviation therefrom;
•(h) sell, transfer or otherwise dispose of any material asset or undertaking;
•(i) enter into any related-party transaction otherwise than at arm's length and in compliance with Section 188 of the Companies Act, 2013, to the extent applicable;
•(j) effect any change in the nature of the business of the Company;
•(k) appoint or remove any key managerial personnel, statutory auditor, or any director;
•(l) wind up, liquidate, amalgamate, merge, demerge, reorganise or restructure the Company;
•(m) settle, compromise or release any litigation or claim exceeding INR Litigation settlement threshold in INR.
9. INFORMATION RIGHTS
1.The Company shall furnish to the Investor:
•(a) unaudited quarterly financial statements within Days for delivery of quarterly accounts days of the end of each quarter;
•(b) the audited annual financial statements within Days for delivery of annual accounts days of the end of each financial year;
•(c) an annual budget approved by the Board, no later than Days before financial year for budget delivery days before the commencement of each financial year;
•(d) prompt written notice of any material litigation, regulatory action, or material adverse change affecting the Company.
10. AFFIRMATIVE RIGHTS OF THE INVESTOR
1.The Investor shall have the right, on not less than Days' notice for inspection days' written notice and not more than Inspections permitted per year times per financial year, to inspect the books of account, records and registered office of the Company, during business hours, and to discuss the affairs of the Company with its senior management, statutory auditors and advisers.
11. RESTRICTIVE COVENANTS ON PROMOTERS
1.Until the occurrence of an exit event or unless otherwise agreed, the Promoters shall, jointly and severally:
•(a) devote their whole time and attention to the business of the Company and not engage in any competing business;
•(b) not sell, transfer, pledge or otherwise encumber their shareholding in the Company, save with the prior written consent of the Investor;
•(c) comply with the non-solicitation and non-compete covenants set out in the SHA.
12. TRANSFER OF SECURITIES
1.Lock-in: The Promoters shall not transfer their shares for a period of Promoter lock-in period from the closing.
2.Right of First Refusal: Any proposed transfer by a shareholder shall first be offered to the other shareholders in proportion to their shareholding, on the terms set out in the SHA.
3.Tag-Along Right: If a Promoter proposes to transfer shares, the Investor shall have the right to require the transferee to purchase from the Investor, on the same terms, not less than Tag-along percentage of the Investor's shareholding.
4.Drag-Along Right: If shareholders holding not less than Drag-along threshold percentage of the share capital (including the Investor) propose a transfer of the whole of the share capital of the Company, they may require the remaining shareholders to sell their shares on the same terms.
5.Anti-Dilution: In the event of any issue of shares at a price lower than the price applicable to the Investor, the Investor shall be entitled to such adjustment (on a broad-based weighted average basis, as set out in the SHA) as may preserve its percentage shareholding on an as-converted basis, to the extent permissible under Indian law.
13. EXIT RIGHTS
1.The Investor shall be entitled to exit, inter alia, by way of:
•(a) an initial public offering of the Company;
•(b) a trade sale or strategic sale of the Company or of the Promoters' shareholding;
•(c) a sale of its shares to a third party in accordance with Paragraph 12;
•(d) put option: the Investor may, upon the occurrence of a promoter default or after Put option vesting period from the closing, require the Promoters to purchase the Investor's shares at a price of Put option price formula, in each case to the extent enforceable under Indian law.
2.The parties acknowledge that any exit price or assurance of return shall be structured so as not to contravene Section 53 of the Companies Act, 2013 (prohibition on discount to the nominal value of shares).
14. REPRESENTATIONS, WARRANTIES AND INDEMNITY
1.The Company and the Promoters shall give to the Investor customary representations and warranties, as set out in the SSA, regarding, inter alia, corporate authority, capitalisation, accounts, assets, material contracts, compliance with law, employment, intellectual property, tax, litigation, and the absence of undisclosed liabilities.
2.The Promoters shall, jointly and severally, indemnify the Investor against losses arising from breach of the representations, warranties and covenants, subject to:
•(a) an overall indemnity cap of the investment amount, save in cases of fraud or misappropriation;
•(b) a claims period of Indemnity claims period from closing (Claims period for fraud for fraud);
•(c) a de minimis of INR Indemnity de minimis in INR per claim and a basket of INR Indemnity basket in INR in aggregate.
15. CLOSING MECHANICS
1.The closing shall take place at Place of closing on such date as the parties may agree, being not later than Days after CP satisfaction for closing days after satisfaction of the conditions precedent. At closing:
•(a) the SSA and the SHA shall be executed in sufficient counterparts;
•(b) the Investor shall remit the investment amount to the Company's designated bank account;
•(c) the Board shall allot the shares and the Company shall cause the Investor's name to be entered in the register of members and issue share certificates, where applicable, within the statutory period;
•(d) stamp duty on the transaction documents shall be borne by Party bearing stamp duty.
16. GOVERNING LAW AND DISPUTE RESOLUTION
1.This Term Sheet and the definitive documents shall be governed by the laws of India.
2.Any dispute arising out of or in connection with the definitive documents shall be referred to arbitration under the Arbitration and Conciliation Act, 1996, by a sole arbitrator {{arbitrator Appointment}} or by Number of arbitrators arbitrators under the institutional rules of Arbitral institution, seated at Seat of arbitration, in the Language of arbitration language. Subject thereto, the courts at City of exclusive jurisdiction shall have exclusive jurisdiction.
17. CONFIDENTIALITY
1.The parties shall keep the terms of this Term Sheet and all information exchanged in the course of the transaction strictly confidential, save for disclosures required by law, regulation, or to professional advisers under a duty of confidence.
18. EXCLUSIVITY
1.For a period of Exclusivity period from the date hereof, the Company and the Promoters shall not solicit, negotiate with or provide information to any other person in relation to any investment in or acquisition of the Company, except with the prior written consent of the Investor.
19. BINDING PROVISIONS
1.The provisions of Paragraphs 16 (Governing Law and Dispute Resolution), 17 (Confidentiality), 18 (Exclusivity), 19 (Binding Provisions) and 20 (Miscellaneous), together with this Paragraph 19, shall be legally binding upon the parties. All other provisions are statements of intent only and shall not give rise to any enforceable obligation.
2.This Term Sheet does not constitute an offer capable of acceptance, and no investment shall be made except pursuant to the SSA, the SHA and the statutory process for private placement under the Companies Act, 2013.
20. MISCELLANEOUS
1.This Term Sheet may be terminated by the Investor at any time prior to execution of the definitive documents, by written notice, without liability (save in respect of breach of the binding provisions).
2.No amendment to this Term Sheet shall be valid unless in writing and signed by all parties.
3.Notices shall be in writing and delivered by hand, registered post with acknowledgement due, or email to the addresses stated above.
4.The Transaction Documents (as defined in the SHA) shall be stamped in accordance with the applicable Stamp Act and, where required, registered under the Registration Act, 1908.
IN WITNESS WHEREOF the parties have caused this Term Sheet to be executed on the day, month and year first above written.
For and on behalf of Company name
Signature: Company signature
Name: Company signatory name
Designation: Company signatory designation
Date: Company signature date
Place: Company signature place
For and on behalf of Investor name
Signature: Investor signature
Name: Investor signatory name
Designation: Investor signatory designation
Date: Investor signature date
Place: Investor signature place
Witnesses:
1. Signature: First witness signature Name : First witness name Address : First witness address
2. Signature: Second witness signature Name : Second witness name Address : Second witness address