Brad Feld

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Term Sheet: Voting Rights and Employee Pool

Jul 05, 2005
Category Term Sheet

Jason and I are feeling the need for closure on our term sheet series as we’ve started gearing up on our next series (M&A).  So – we’re going to knock out the balance of the standard term sheet terms this week.  We’re still in the “terms that don’t matter much zone” so we’re including Voting Rights and Employee Pool for completeness.

“Voting Rights: The Series A Preferred will vote together with the Common Stock and not as a separate class except as specifically provided herein or as otherwise required by law.  The Common Stock may be increased or decreased by the vote of holders of a majority of the Common Stock and Series A Preferred voting together on an as if converted basis, and without a separate class vote.  Each share of Series A Preferred shall have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series A Preferred.”

Most of the time voting rights are simply an “FYI” section as all the heavy rights are contained in other sections such as the protective provisions.

“Employee Pool: Prior to the Closing, the Company will reserve shares of its Common Stock so that __% of its fully diluted capital stock following the issuance of its Series A Preferred is available for future issuances to directors, officers, employees and consultants.  The term “Employee Pool” shall include both shares reserved for issuance as stated above, as well as current options outstanding, which aggregate amount is approximately __% of the Company’s fully diluted capital stock following the issuance of its Series A Preferred.” 

The employee pool section is a separate section in order to clarify the capital structure and specifically call out the percentage of the company that will be allocated to the option pool associated with the financing.  Since a cap table is almost always included with the term sheet, this section is redundant, but exists so there is no confusion about the size of the option pool.