Term sheet for investment through CCPS
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TERM SHEET
FOR PROPOSED INVESTMENT BY WAY OF COMPULSORY CONVERTIBLE PREFERENCE SHARES
Company name(the "Company")
Investor name(the "Investor")
Founder names(the "Founders")
Collectivelythe "Parties"
Date of Term SheetDate of term sheet
Place of ExecutionPlace of execution
1.Purpose. This term sheet sets out the principal terms on which the Investor proposes to subscribe to compulsorily convertible preference shares ("CCPS") of the Company. This term sheet is indicative and non-binding, except for the provisions expressly stated to be binding in paragraph 18 below. The definitive terms shall be recorded in a Share Subscription and Shareholders' Agreement ("SSSHA") and articles of association to be amended accordingly.
1.The Investment.
(a)Instrument: Compulsory convertible preference shares of the Company, face value ₹ Face value per CCPS per CCPS.
(b)Aggregate investment amount: ₹ Investment amount (Rupees Investment amount in words only).
(c)Pre-money valuation: ₹ Pre-money valuation.
(d)Post-money valuation: ₹ Post-money valuation.
(e)Number of CCPS to be subscribed: Number of CCPS, being approximately Percentage ownership % of the fully diluted share capital of the Company on completion.
(f)Price per CCPS: ₹ Price per CCPS, determined on the basis of the valuation report of a registered valuer under Section 62(1)(c)(ii) of the Companies Act, 2013 read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014.
1.Tranches. The Investment may be made in Number of tranches tranche(s), each upon satisfaction of the milestone conditions set out in the SSSHA. First tranche amount: ₹ First tranche amount; subsequent tranche(s): ₹ Subsequent tranche amount.
1.Conditions Precedent. Subscription and payment are subject to, among other things:
(a)satisfactory completion of legal, financial and business due diligence of the Company to the Investor's reasonable satisfaction;
(b)approval of the issue of CCPS by the shareholders of the Company by special resolution under Section 62(1)(c) of the Companies Act, 2013;
(c)in-principle and final approvals, if applicable, from Stock exchanges (in the case of a listed company) and the Regional Director / Central Government, where required;
(d)receipt of all material consents, waivers and no-objection certificates from lenders, licensors and counterparties;
(e)board and shareholder approval of the SSSHA and amended articles of association;
(f)filing of necessary resolutions with the Registrar of Companies within the prescribed period under the Companies Act, 2013;
(g)no material adverse change in the business, assets or condition (financial or otherwise) of the Company;
(h)Other conditions precedent.
1.Conditions Subsequent. The Company shall, within the periods agreed in the SSSHA, complete: (a) filing of Form FC-GPR and reporting to the Reserve Bank of India under the Foreign Exchange Management Act, 1999 and the Foreign Direct Investment (FDI) Policy / Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, if the Investor is a non-resident; (b) stamping of documents under the applicable Stamp Act; and (c) Other conditions subsequent.
1.Terms of the CCPS. The CCPS shall carry:
(a)a dividend of Dividend rate % per annum, Dividend type, payable subject to availability of distributable profits and at the discretion of the Board, and non-cumulative unless otherwise stated;
(b)preference over equity shareholders in payment of dividend and, on winding up or repayment, in the return of capital to the extent of the issue price plus declared but unpaid dividends;
(c)compulsory conversion into fully paid equity shares of the Company upon the earliest of (i) an Initial Public Offering, (ii) a qualified exit or change of control, and (iii) the expiry of CCPS conversion period (years) years from the date of allotment, in compliance with Section 55 of the Companies Act, 2013 and Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014;
(d)a conversion ratio initially Conversion ratio, subject to anti-dilution adjustment;
(e)voting rights on all matters as prescribed by Section 47(2) of the Companies Act, 2013, including a class vote on resolutions affecting the rights attached to the CCPS.
1.Anti-Dilution. If the Company issues new shares at a price lower than the Investor's conversion price (other than customary exempted issuances such as employee stock options and shares issued under an ESOP scheme), the conversion price of the CCPS shall be adjusted on a Anti-dilution formula basis.
1.Liquidation Preference. On a winding up, liquidation, sale or amalgamation of the Company, the Investor shall be entitled to receive, prior and in preference to equity shareholders, Liquidation preference multiple times the issue price plus accrued and unpaid dividends, with any remaining assets distributed among the other shareholders in proportion to their shareholding.
1.Board of Directors. Following completion, the board of the Company shall consist of Total board size directors, comprising: (a) Investor nominee directors director(s) nominated by the Investor; (b) directors nominated by the Founders; and (c) Independent directors independent director(s). The Investor's nominee shall be entitled to attend and vote at meetings of all committees of the board.
1.Reserved Matters. The following shall require the prior written approval of the Investor's nominee director and/or the Investor as a shareholder:
•amendment of the memorandum or articles of association of the Company;
•issue of any further shares or securities convertible into shares, or any grant of options;
•change in the authorised share capital;
•declaration of dividend or distribution of profits;
•borrowing, lending, guarantees or security exceeding ₹ Debt threshold for reserved matters in the aggregate;
•merger, demerger, amalgamation, sale of the whole or substantially the whole of the undertaking, or voluntary winding up;
•acquisition, disposal or encumbrance of assets exceeding ₹ Asset threshold for reserved matters;
•change in the nature of business of the Company;
•approval of annual business plans and budgets, and deviations therefrom beyond Budget variance threshold (%) %;
•appointment or removal of key managerial personnel, statutory auditors, or the adoption of an ESOP scheme;
•related party transactions except at arm's length in the ordinary course of business;
•Other reserved matters.
1.Protective Rights of the Investor. The Investor shall have: (a) tag-along rights coextensive with the Founders on terms in the SSSHA; (b) pro-rata participation rights in future issuances to maintain its percentage ownership; (c) customary information rights, including audited annual accounts and quarterly management accounts; and (d) a right of first refusal on transfers by the Founders.
1.Lock-in, Transfer and Exit.
(a)The Founders shall not transfer their shares for a period of Founder lock-in period years from completion, save for bona fide transfers of a stated minority of their holding permitted under the SSSHA.
(b)Exit rights: the Investor's exit shall be facilitated through Exit routes, including a put option exercisable after Put option exercise date upon breach of specified obligations or failure to achieve Exit event.
1.Founders' Covenants. The Founders shall: (a) devote full working time and attention to the business of the Company; (b) remain in full-time employment of the Company; (c) not engage in any competing business during the term of their association and for Non-compete period thereafter; and (d) be subject to vesting/revesting of their equity shares over Founder vesting period in accordance with the SSSHA.
1.Representations and Warranties. The Company and the Founders shall make standard representations and warranties as to due incorporation, capitalisation, authority, financial statements, litigation, tax, employment, statutory compliances (including under the CGST Act, 2017 and applicable labour laws), intellectual property, and absence of undisclosed liabilities, in form and substance reasonably acceptable to the Investor, and indemnities in favour of the Investor for breach thereof.
1.Indicative Timelines.
| Event | Target Date |
|---|---|
| Completion of due diligence | Due diligence completion date |
| Execution of SSSHA and articles | SSSHA execution date |
| Shareholder approvals | Shareholder approval date |
| Filing with Registrar of Companies | ROC filing date |
| First tranche remittance | First tranche remittance date |
1.Costs and Taxes. Each Party shall bear its own costs, except that Transaction costs bearer shall bear the costs of due diligence, legal fees, valuation, stamp duty and other transaction expenses up to ₹ Transaction costs cap, or as otherwise agreed in the SSSHA. Stamp duty on the instruments shall be borne Stamp duty bearer and paid in the state of State of stamping in accordance with the applicable Stamp Act and the Registration Act, 1908, where registration is required.
1.Binding and Non-Binding Provisions. This term sheet is non-binding and creates no obligation on any Party to consummate the Investment, except paragraphs 11 (Protective Rights statement of intent is non-binding; nothing in this term sheet is binding except this paragraph 18), and specifically the following, which are binding: (a) this paragraph 18; (b) exclusivity; (c) confidentiality; and (d) governing law and dispute resolution.
(a)Exclusivity. For a period of Exclusivity period from the date hereof, the Company and the Founders shall not solicit, negotiate or enter into discussions with any other party regarding any investment in, or sale of, the Company or its shares, without the Investor's prior written consent.
(b)Confidentiality. The terms of this term sheet and all information exchanged shall be kept confidential and shall not be disclosed except to professional advisers on a need-to-know basis or as required by law.
1.Governing Law and Dispute Resolution. This term sheet shall be governed by the laws of India. Any dispute arising out of or in connection with this term sheet shall be finally resolved by arbitration under the Arbitration and Conciliation Act, 1996, by a sole arbitrator mutually appointed by the Parties, seated at Arbitration seat, and the language of arbitration shall be English. Subject thereto, the courts at Exclusive jurisdiction courts shall have exclusive jurisdiction.
1.Miscellaneous.
(a)This term sheet supersedes all prior discussions and understandings on the subject matter.
(b)No waiver of any provision shall be effective unless in writing.
(c)Amendments shall be in writing and signed by all Parties.
(d)Notices shall be in writing and delivered to the addresses set out below.
1.Signatures.
For and on behalf of Company name
Signature:
Name: Company signatory name
Designation: Company signatory designation
Address: Company address
Date: Company signature date
For and on behalf of Investor name
Signature:
Name: Investor signatory name
Designation: Investor signatory designation
Address: Investor address
Date: Investor signature date
For and on behalf of the Founders
Signature:
Name: Founder 1 name
Date: Founder 1 signature date
Signature:
Name: Founder 2 name
Date: Founder 2 signature date
Witnesses:
1.Name: Witness 1 name Signature:
2.Name: Witness 2 name Signature: