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TERM SHEET: BLOOD, SWEAT AND TEARS June 6, 2007 Henry Wong Diamond Tech Ventures Sara Rauchwerger BG Strategy Samba Murthy, Director Xambala Fred Greguras.

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Presentation on theme: "TERM SHEET: BLOOD, SWEAT AND TEARS June 6, 2007 Henry Wong Diamond Tech Ventures Sara Rauchwerger BG Strategy Samba Murthy, Director Xambala Fred Greguras."— Presentation transcript:

1 TERM SHEET: BLOOD, SWEAT AND TEARS June 6, 2007 Henry Wong Diamond Tech Ventures Sara Rauchwerger BG Strategy Samba Murthy, Director Xambala Fred Greguras Fenwick & West LLP 1727808.1

2 1 SERIES A FINANCINGS KEY TERMS Pre-money valuation – item 1, page 1 Size of option pool – item 5, page 1 Founders vesting schedules – item 13, page 6 Board size and composition – item 12, page 6 Liquidation preference – item 7(2), page 2 No shop period – item 16, page 7 Drag-along rights – item 17, page 7

3 2 IMPACT OF OPTION POOL SIZE EXAMPLE (I) Fully-diluted means (1) outstanding stock, plus (2) outstanding options, plus (3) option reserve, plus (4) any other outstanding equity Pre-money valuation includes fully-diluted stock not just issued shares Pre-money of $6M Investment of $4M Shares % Founders (CS)4M40% Stock Option Pool (CS)2M20% Series A Investors4M40% Price per share = $6M/6M shares or $1 per share

4 3 IMPACT OF OPTION POOL SIZE EXAMPLE (II) Pre-money of $6M Investment of $4M Shares % Founders (CS) 4M34.3% Stock Option Pool (CS) 3M25.7% Series A Investors 4,667,44540.0% Price per share = $6M/7M shares or $0.857 per share Series A shares purchased is $4M/$0.857 = 4,667,445

5 4 LIQUIDATION PREFERENCE EXAMPLE (I) Startup, Inc. is acquired for $40M Series A LP is for $4M, participating, no cap Series A owns 50% and common stock owns 50% of the outstanding shares Distribution:1) $4M to Series A (initial) 2) $18M to Series A $18M to common stock 3) Series A receives a total of $22M. common stock gets $18M

6 5 LIQUIDATION PREFERENCE EXAMPLE (II) Startup, Inc. is acquired for $40M Series A LP is for $4M, participating, 3X cap Series A owns 50% and common stock owns 50% of the outstanding shares Distribution:1) $4M to Series A (initial); next $18M to Series A, $18M to common stock but Series A capped at 3X or $12M 2) Conversion to common stock scenario-50% is $20M 3) Series A will elect to convert so will receive $20M as compared to $22M in a no cap situation. Common stock gets $20M.

7 6 DRAG-ALONG RIGHTS Drag-along Rights – Item 17, page 7 Purpose is to provide investors with control over having liquidity through an M&A Requires certain common stock holders to vote in favor of an acquisition Board and preferred stock approve the transaction Acquiror not affiliated with any major investor Base valuation for the acquisition


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