Venture Financing:

Structuring the Deal

Preferred Stock

Typical Terms of Preferred Stock Issued to Venture Capitalists

• Types of security and number of shares issued, price per share

• Conversion price: number of common shares per preferred share

• Additional formulas

• Registration rights: demand rights; "piggyback"; registration expenses; transfer of rights

• Use of proceeds

• Right of first offer to purchase of new securities

• Stock restriction agreements

• Reserved shares

• Non-competition agreement

• Veto rights: next financings, acquisitions, mergers

• Veto rights:

- Sale and other disposition of assets

- Dividends

- Amount of stock issued

- Borrowing and leasing

- Compensation of executive employee staff

- Ownership, sale or access of technology

• Rights of inspection

• Right to elect board members, attend board meetings

• Vesting rights of employees

• Receipt of financial statements

• Closing expenses