Intrastate Offering Exemption Private Offering Exemption Regulation A Rule 504 Rule 505 Rule 506 SCOR Accredited Investor Exemption: Section 4(6) What's Special about Exempt Offerings under Regulation A, Regulation D Rule 504? Are there state law requirements in addition? Private Placement Offering Alternatives Term Sheet Example
Are there legal ways to sell securities without registering with the SEC?
Yes! The Securities Act provides several exemptions from the registration requirements; the most common are discussed below. Nonetheless, purchases or sales of securities (even in exempt transactions) are subject to the anti-fraud provisions of the federal securities laws. This means that issuers are responsible for false or misleading statements (whether oral or written) which may be redressed through private or government legal action, including criminal sanctions. Also, if all conditions of the exemptions discussed below are not met, purchasers may seek to have their purchase price refunded. In addition, the fact that an offering may be exempt from certain provisions of the federal securities laws does not necessarily mean that it is exempt from the notice and filing obligations of various state laws. Issuers are cautioned to check with the appropriate state authority before proceeding with an offering relying on any of the exemptions discussed below.
Intrastate Offering Exemption
Section 3(a)(11) of the Securities Act is generally known as the "intrastate offering exemption." It exempts from registration any security which is part of an issue offered and sold only to residents of a single state or territory and the issuer is both a resident of and doing business within that state or territory. This exemption is intended to facilitate the local financing of local business operations. In order to qualify for the intrastate offering exemption, your company must: Be incorporated in the state where it is making the offering; Carry out a significant amount of its business in that state; and Make offers and sales only to residents of that state.
Although there is no fixed limit on the size of the offering or the number of purchasers, your company has the obligation to determine the residence of each purchaser. If any of the securities are offered or sold to one out-of-state purchaser, the exemption may be lost. In addition, if any of the securities are resold by an original resident purchaser to a person resident outside the state within nine months after the offering by the issuer is completed, the entire transaction may be in violation of the Securities Act. Therefore, there is usually no significant after-market for any securities issued in an intrastate offering during the nine-month period following the initial sale. Consequently, they must normally be sold at a discount.
It is difficult for you as an issuer to rely on the intrastate exemption unless your company knows the purchasers and the sale is directly negotiated with them. A company with some of its assets outside the state, or deriving a substantial portion of its revenues outside the state where it proposes to offer its securities, will probably have a difficult time justifying the exemption.
The SEC has adopted Rule 147, a "safe harbor" rule, which may be followed by companies to be certain they meet the requirements for this exemption. It is possible, however, that transactions not meeting all requirements of Rule 147 may still qualify for the exemption.
Private Offering Exemption
Section 4(2) of the Securities Act provides exemption from registration for "transactions by an issuer not involving any public offering." There has been much uncertainty as to the precise limits of this private offering exemption. Generally, sales to persons who have access to information about the company and are able to fend for themselves (such as those directly managing the business) fall within the intended scope of the exemption. These are known as "sophisticated investors." As the number of purchasers increase and their relationship to the company and its management becomes more remote, however, it becomes more difficult for an issuer to demonstrate that the transaction does, in fact, qualify for the exemption.
To qualify the offering under this exemption, it is necessary that the persons to whom your company sells the security: Have sufficient knowledge and experience in financial and business matters that they are capable of evaluating the risks and merits of the investment (the "sophisticated investor"), or are able to bear the economic risk of the investment; Have access to the type of information normally provided in a prospectus; and Agree not to resell or distribute the securities.
In addition, your offering may not be made by any form of public solicitation or general advertising. You should be aware that if the security is offered for sale to even one person who does not meet the necessary conditions, the entire offering may be in violation of the Securities Act. The SEC has adopted Rule 506, another "safe harbor" rule, which provides objective standards upon which business people may rely in order to be certain they meet the requirements of this exemption. Rule 506 is a part of Regulation D, which is described more fully later.
Regulation A
Section 3(b) of the Securities Act gives the SEC authority to exempt from registration certain offerings where the securities to be offered involve relatively small dollar amounts. Under this provision, the SEC has adopted Regulation A, a conditional exemption for certain public offerings not exceeding $5 million in any 12-month period. An offering statement (consisting of a notification, offering circular, and exhibits) must be filed with the SEC Regional Office in the region where the company's principal business activities are conducted. Although Regulation A is technically an exemption from the registration requirements of the Securities Act, it is often referred to as a "short form" of registration since the offering circular (similar in content to a prospectus) must be supplied to each purchaser and the securities issued are freely tradeable in an after-market. The principal advantages of Regulation A offerings, as opposed to full registration on either Form 5-1 or SB-2, are: Required financial statements are simpler and need not be audited; and There are no periodic SEC reporting requirements (other than sales reports following the sale of the securities) unless the issuer has more than $5 million in total assets and more than 500 shareholders. There are three permitted offering circular formats under Regulation A, one of which is a simplified question-and-answer document. This style of disclosure is useful to potential investors and may offer significant benefits to the issuer in the time expended and the costs of preparation.
Advantages of a Regulation A offering as opposed to a full registration include: Simpler financial statements. Generally no Exchange Act reporting obligations after the offering is made.
All types of companies which are not reporting under the Exchange Act may use Regulation A, except "blank check" companies (i.e., those with the business of seeking an unspecified business) and investment companies registered or required to be registered under the Investment Company Act of 1940. In most cases, Regulation A may also be used by shareholders for the resale of up to $1.5 million of securities.
Regulation A includes a provision which allows an issuer to "test the water" to determine whether or not there is any investor interest in its securities before the filing of a complete offering document. Thus, an issuer may publish factual information about its business or proposed business before incurring a full range of legal, accounting and other costs, in order to gauge potential investor interest in a possible securities offering; however, the provision specifically provides that no money may be solicited or accepted until an offering statement has been qualified by the Commission, and prescribed offering materials have been delivered to potential investors.
Regulation D
Under Sections 4(2) and 3(b) of the Securities Act, the SEC in March, 1982, adopted Regulation D to coordinate the various limited offering exemptions and to streamline the existing requirements applicable to private offers and sales of securities. The Regulation establishes three exemptions from registration in Rules 504, 505, and 506.
Rule 504
Rule 504, which provides an exemption for non-reporting companies unless they are "blank check" issuers, for sales of securities up to $1,000,000, stipulates that: The sale of up to $1,000,000 of securities in a 12-month period is permitted. Securities (both debt and equity) can be sold to an unlimited number of persons. The offering may be made with general solicitation or general advertising. These securities are freely traded and not "restricted." This means investors may sell their securities on the open market without registration or other sales limitations that are on privately placed securities. Audited financials are not required. A Form D notice be filed with SEC headquarters within 15 days after the first sale of securities under the Rule.
Unlike Rules 505 and 506, Rule 504 does not mandate that specified disclosure be provided to purchasers. Nonetheless, the businessperson should take care that sufficient information is provided to meet the full disclosure obligations which exist under the antifraud provisions of the securities laws. This rule is considered by many to be the perfect answer for the small company that needs to raise up to $1 million but can't afford the time or expense to go through the entire SEC registration process. Because of the free tradability of stock and the fact that the minimum share price can be under $5, Regulation D Rule 504 offerings are at times recommended when appropriate.
Rule 505
Rule 505 was adopted by the SEC to provide small businesses more flexibility in raising capital than under Rule 504 - but without the uncertainty of determining the quality of the purchasers that generally is involved in using Rule 506. Rule 505 provides issuers a limited offering exemption for sales of securities totaling up to $5 million in any 12- month period, selling to an unlimited number of "accredited investors" and up to 35 other persons. The issued securities are "restricted" and may not be sold for at least a year without registering the transaction. Rule 505 contains certain restrictions regarding "accredited investors" and non-accredited persons. The term "accredited investor" includes: Banks, insurance companies, registered investment companies, business development companies, or small business investment companies; Certain employee benefit plans for which investment decisions are made by a bank, insurance company, or registered investment adviser; Any employee benefit plan (within the meaning of Title of the Employee Retirement Income Security Act) with total assets in excess of $5 million; Charitable organizations, corporations or partnerships with assets in excess of $5 million; Directors, executive officers, and general partners of the issuer; Any entity in which all the equity owners are accredited investors; Natural persons with a net worth of at least $1 million; Any natural person with an income in excess of $200,000 in each of the two most recent years or joint income with a spouse in excess of $300,000 for those years and a reasonable expectation of the same income level in the current year; and Trusts with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person.
There is no specific information the issuer must furnish to accredited investors. However, non-accredited investors must be advised of and furnished, upon request, all material information furnished to accredited investors, as well as certain specified information.
Financial statement requirements include: Only financial statements for the most recent fiscal year need be certified by an independent public accountant; If an issuer other than a limited partnership cannot obtain audited financial statements without unreasonable effort or expense, only the issuer's balance sheet (to be dated within 120 days of the start of the offering) must be audited; Limited partnerships unable to obtain required financial statements without unreasonable effort or expense may furnish financial statements prepared on the basis of federal income tax requirements and examined and reported on by an independent public or certified accountant in accordance with generally accepted auditing standards; and The issuer must also be available to answer questions by prospective
purchasers about the issuer or the offering.
Further restrictions under Rule 505 include: The total offering price of each issue of securities may not exceed $5 million. The offering may not be made by means of general solicitation or general advertising. The issuer may sell the securities to an unlimited number of "accredited investors" and to 35 non-accredited persons. There are no requirements of "sophistication" or "wealth" for persons to whom the securities are sold. A company must take any necessary steps to ensure that the purchasers are acquiring securities for investment only, not for resale. The securities are thus "restricted" and investors must be informed that they may not be able to sell for at least two years. The issuer is not required to file any offering materials with the Commission. Fifteen days after the first sale in the offering, the issuer must file a notice of sales on Form D. The notice also contains an undertaking under this Rule for the issuer to furnish the Commission, upon its staff's request, any information given to non-accredited purchasers in connection with the offering.
Rule 506
Under this exemption, you can raise an unlimited amount of capital, cannot use general solicitation or advertising to market the securities, can sell securities to an unlimited number of accredited investors and up to 35 other "sophisticated" purchasers, financial statements must be certified, and purchasers receive "restricted" securities. Consequently, purchasers may not freely trade the securities in the secondary market immediately after the offering.
Offers and sales of securities by an issuer that satisfy the conditions stated below are deemed transactions not involving any public offering within the meaning of Section 4(2) of the Securities Act. For an offering to be considered exempt from the registration requirements, Rule 506 stipulates: There is no ceiling on the amount of money which may be raised. No general solicitation or general advertising is permitted. The issuer may sell its securities to an unlimited number of accredited investors and 35 non-accredited purchasers. Unlike Rule 505, all non-accredited purchasers (either alone or with a purchaser representative) must be sophisticated that is, have sufficient knowledge and experience in financial and business matters to render them capable of evaluating the merits and risks of the prospective investment. The term "accredited investor" is defined as above under Rule 505. There is no specific information which the issuer must furnish to accredited investors. However, non-accredited investors must be advised of and furnished, upon request, all material information furnished to accredited investors, as well as certain specified information. The information requirements are generally the same as those on the registration form the issuer would be entitled to use. If the issuer cannot obtain audited financial statements without unreasonable effort or expense, then financial statements may be provided in accordance with the special treatment described under Rule 505 above. The securities sold are "restricted" under the same stipulations in Rule 505. A company is required to file a notice of the offering on Form D at SEC headquarters within 15 days after the first sale in the offering. There is no requirement to file the offering memorandum with the Commission.
SCOR
Small Corporate Offering Registration falls under the 504-D exemption. The Form U-7 can be used which utilizes a format that standardizes the prospectus and reduces paperwork required in most offerings. Under the SCOR program: companies can raise up to $1 million in a 12-month period, securities must be registered in the state(s) where they are to be sold, can be sold to an unlimited number of investors, general advertising or solicitation can be used to assist in marketing, and are freely traded (not restricted). The minimum price per share under SCOR is $5.00.
Accredited Investor Exemption: Section 4(6)
The Small Business Investment Incentive Act of 1980 created a new statutory exemption from registration under the Securities Act for transactions involving offers and sales of securities by any issuer solely to one or more accredited investors. Under Section 4(6):
The total offering price of each issue of securities under the exemption may not exceed the limit on small offerings set by Section 3(b) the Securities Act, which currently is $5 million per issue. The offering may not be made by means of any form of advertising or public solicitation. The term "accredited investor" is defined to include the same individuals and entities as included for purposes of Rules 505 and 506. The issuer is required to file a notice of sales on Form D with the Commission 15 days after the initial sale is made in reliance on the exemption. The Section 4(6) exemption does not contain any specific disclosure requirements. The issuer is cautioned however, that, as in the case of the other exemptions, Section 4(6) does not exempt the issuer from the antifraud provisions of the securities laws.
What's Special about Exempt Offerings under Regulation A, Regulation D Rule 504?
As a matter of speed and practical economics, wherever appropriate, Regulation A and Regulation D Rule 504 are recommended, but of course, every situation is different. Regulation A is used to raise from $1-$5 million (with free trading stock). Unlike Rules 505 and 506 which have "restricted" stock, Regulation D Rule 504 has "free trading" stock, and unlike SCOR offerings, the 504 per share price can be under $5. These unique characteristics have much greater appeal to prospective investors, and therefore many times making the 504 offering the one of choice in raising up to $1 million in a 12-month period. Note that any information you provide to investors must be free from false or misleading statements. Similarly, you should not exclude any information if the omission makes what you do provide investors false or misleading information.
Are there state law requirements in addition to those under the Federal securities laws?
The federal government and state governments each have separate and autonomous securities laws and regulations. Compliance with the laws and rules of one does not constitute compliance with the laws and regulations of the other. A company selling securities must comply with federal securities laws as well as with the laws of each state in which it intends to offer its securities. In addition, the fact that a particular offering may be exempt from certain provisions of the federal securities laws does not necessarily mean that it is exempt from the notice and filing requirements of state laws.
In certain states, the law permits a state official to judge the merits of an offering. In these "merit states," even though a company complies with the registration or filing procedures, the state may prohibit the offering because the state official does not consider it to be "fair, just, and equitable" for purchase by citizens of that state. Consequently, an issuer of securities must be careful to make sure there is compliance with all the appropriate state requirements, as well as with the federal securities laws.
Private Placement Offering Alternatives
| | Rule 504 (b) (1)
(I) (SCOR Offerings) | Regulation A | Registered Offering on Form SB-1 | Registered Offering on Form SB-2 | Registered Offering on Form S-1 | Amount of Offering | Up to $1 million | $5 million annually | $10 million in any continuous 12 months | No limit | No limit | Type of issuer | Non-reporting issuers except investment companies or "blank check companies" | Non-reporting U.S. or Canadian issuers except investment companies or "blank check companies." | Non-reporting "small business issuer" as defined by the SEC | Must be a "small business issuer" | Any issuer | Type of Offering | Issuer offering only | Issuer offering and shelf (block of stocks offered in specified stages to avoid drastic changes in the stock price) and secondary offerings up to $1.5 million | No limitations | No limitations | No limitations | Disclosure Required | No federal requirements. NASAA U-7 adopted by most states. California has its own SCOR form | Offering statement with three models: Forms U-7, 1-A or SB-2 | Form U-7 and Form 1-A accepted | SB-2 form | S-1 basic registration form for most offerings | Financial Statements Required | No federal requirements. NASAA U-7 requires GAAP last FY balance sheet and 2 years profit and loss unaudited. Requirements vary from state to state | Federal. GAAP last FY balance sheet and 2 years audited profit and loss, plus unaudited interims. Requirements vary from state to state | Federal. GAAP last FY balance sheet and 2 years audited profit and loss, plus unaudited interims. Requirements vary from state to state | Federal. GAAP last FY balance sheet and 2 years audited profit and loss, plus unaudited interims. Requirements vary from state to state | Federal. Last 2 FY balance sheets and last 3 years audited profit and loss, plus unaudited interims | Test the Waters? | No | Yes. Can solicit indication of interest before filing offering statement. Must file solicitations documents with SEC. May violate state law | No | No | No | Exchange Act Reporting Requirements | None, unless required under Section 2 (g) ($5 million total assets and 500 shareholders | None, unless required under Section 2 (g) ($10 million total assets and 500 shareholders | Yes. Subject to simplified reporting under Reg. S-B | Yes. Subject to simplified reporting under Reg. S-B | Yes. All reports required under Section 13 |
TERM SHEET FOR SERIES A ROUND OF FINANCING OF NEWCORP | Amount of Investment: | $3,000,000 | | | | | | Investors: | XYZ Venture Capital Co. | | | ABC Capital Holdings | | | | | | | Type of Security: | Series A Convertible Preferred Stock | | | | | | Premoney Valuation: | $7,000,000[1] | | | | | | Capital Structure Following Series A Round: | Existing holders of Common Stock: | 55% | | | | | Option Pool: | 15%[2] | | | | | Holders of Series A Preferred Stock: | 30% | | | | | Total: | 100% |
Use of Proceeds: The Company shall use the proceeds from this financing for working capital purposes. Dividends: The Company will not pay dividends on its shares of Common Stock or any other stock which is junior to the Series A Preferred Stock unless a like dividend is paid on all shares of Series A Preferred Stock on a pro rata “as converted” basis.[3] Conversion: Each share of Series A Preferred Stock shall be convertible, at any time, at the option of the holder, into shares of Common Stock, at an initial conversion ratio of one share of Common Stock for each share of Series A Preferred Stock. Mandatory conversion of the Series A Preferred Stock upon the effectiveness of a registration statement covering a firmly and fully underwritten public offering of Common Stock of the Company by a reputable underwriter acceptable to the Investors at a price which equals or exceeds five times the purchase price per share of the Series A Preferred Stock and where the aggregate gross proceeds received by the Company exceeds $25 million (a “Qualified Public Offering”)[4]. Antidilution: The terms of the Series A Preferred Stock will contain standard “weighted average” antidilution protection with respect to the issuance by the Company of equity securities at a price per share less than the applicable conversion price then in effect, subject to standard and customary exceptions.[5] The conversion rate of the Series A Preferred Stock into common stock will be adjusted appropriately to account for any stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events. Antidilution protection shall not be triggered by the issuance of up to 1,000,000 shares of Common Stock (or options therefor) issued in accordance with the Company’s Stock Option Plan. Voting Rights: On all matters submitted for stockholder approval, each share of Series A Preferred Stock shall be entitled to such number of votes as is equal to the number of shares of Common Stock into which such shares are convertible. In addition, the Company shall not, without the prior consent of the holders of at least a majority of the then issued and outstanding Series A Preferred Stock, voting as a separate class:
a) issue or create any series or class of securities with rights superior to or on a parity with the Series A Preferred Stock or increase the rights or preferences of any series or class having rights or preferences that are junior to the Series A Preferred Stock so as to make the rights or preferences of such series or class equal or senior to the Series A Preferred Stock.
b) pay dividends on shares of the capital stock of the Company.
c) effect any exchange or reclassification of any stock affecting the Series A Preferred Stock or any recapitalization involving the Company and its subsidiaries taken as a whole.
d) repurchase or redeem, or agree to repurchase or redeem, any securities of the Company other than from employees of the Company upon termination of their employment pursuant to prior existing agreements approved by the Board of Directors of the Company.
e) enter into any transaction with management or any member of the board of directors, except for employment contracts approved by the Board of Directors and transactions entered at arms-length terms which are no less favorable to the Company than could be obtained from unrelated third parties.
f) effect any amendment of the Company's Certificate of Incorporation or Bylaws which would materially adversely affect the rights of the Series A Preferred Stock.
g) incur or guarantee debt in excess of $100,000.
h) voluntarily dissolve or liquidate.
i) effect any merger or consolidation of the Company with or into another corporation or other entity (except one in the holders of the capital stock of the Company immediately prior to such a merger or consolidation continue to hold at least a majority of the capital stock of the surviving entity after the merger or consolidation) or sell, lease, or otherwise dispose of all or substantially all or a significant portion of the assets of the Company.
j) change the size of the Board of Directors or change any procedure of the Company relating to the designation, nomination, or election of the Board of Directors.
k) amend, alter, or repeal the preferences, special rights, or other powers of the Series A Preferred Stock so as to adversely affect the Series A Preferred Stock.
l) make capital expenditures of more than $50,000 in a single expenditure or an aggregate of $100,000 in any twelve-month period.[6] Liquidation Preference: The holders of Series A Preferred Stock shall have preference upon liquidation over all holders of Common Stock and over the holders of any other class or series of stock that is junior to the Series A Preferred Stock for an amount equal to the greater of (i) amount paid for such Series A Preferred Stock plus any declared or accrued but unpaid dividends, and (ii) the amount which such holder would have received if such holder’s shares of Series A Preferred Stock were converted to Common Stock immediately prior to such liquidation. Thereafter, the holders of Common Stock will be entitled to receive the remaining assets. For purposes of this section, a merger, consolidation, sale of all or substantially all of the Company's assets, or other corporate reorganization shall constitute a liquidation, unless the holders of at least a majority of the Series A Preferred Stock vote otherwise.[7] Board of Directors: The Board of Directors of the Company shall be composed of five members. Of these five members, the holders of the Series A Preferred Stock shall have the right to designate two directors (one of such two directors to be designated by ABC Ventures, the other by XYZ Capital), and the founders of the Company shall have the right to designate two directors. The remaining director shall be designated by such four directors.[8] Options and Vesting: All stock and options held by founders, management, and employees shall vest over a four-year period. Stock currently held by founders will be considered to be 25% vested as of the closing of this financing with the balance to vest in equal monthly installments over four years. All others shall vest in equal monthly installments over four years with a one-year cliff at the beginning of the vesting term. Change of control provisions to provide for no more than an additional 50% for founders and select management and one year for all others.[9] Registration Rights: Commencing on the earlier of three years from the closing or six months after the effective date of the Company's first public offering, holders of shares of Series A Preferred Stock or shares of Common Stock issued upon conversion thereof ("Registrable Stock") shall have the right to demand two “S-1” registrations with aggregate gross offering price in excess of $10,000,000, upon customary terms and conditions. The holders of Series A Preferred Stock will also be entitled to “piggyback” registration rights on Company registrations. The holders of Series A Preferred Stock will also be entitled to unlimited registrations on Form S-3 with at least $1,000,000 in aggregate gross offering price, on customary terms and conditions. The Company will bear all expenses related to all registrations and underwritings. Affirmative Covenants: While any Series A Preferred Stock is outstanding, the company will:
a) maintain adequate property and business insurance.
b) comply with all laws, rules, and regulations.
c) preserve, protect, and maintain its corporate existence; its rights, franchises, and privileges; and all properties necessary or useful to the proper conduct of its business.
d) submit all reports required under Section 1202(d)(1)(C) of the Internal Revenue Code and the regulations promulgated thereunder.
e) cause all key employees to execute and deliver noncompetition, nonsolicitation, nonhire, nondisclosure, and assignment of inventions agreements for a term of their employment with the Company plus one year in a form reasonably acceptable to the Board of Directors.
f) not enter into related party transactions without the consent of a majority of disinterested directors.
g) reimburse all reasonable out-of-pocket travel-related expenses of the Series A Preferred Stock directors.[10] Financial Statements and Reporting:
The Company will provide all information and materials, including, without limitation, all internal management documents, reports of operations, reports of adverse developments, copies of any management letters, communications with shareholders or directors, and press releases and registration statements, as well as access to all senior managers as requested by holders of Series A Preferred Stock. In addition, the Company will provide the holders of Series A Preferred Stock with unaudited monthly and quarterly and audited yearly financial statements, as well as an annual budget. Redemption: Commencing with the date that is five years from the date of closing and on each one-year anniversary of such date thereafter, holders of at least a majority of the then issued and outstanding shares of Series A Preferred Stock may request the Company to redeem their shares at a price equal to the original purchase price for such shares plus any declared but unpaid dividends, with 1/3 of the shares to be redeemed shall be redeemed on such redemption date, an additional 1/3 on the date that is one year from such date, and the remaining 1/3 on the date that is two years from such date.[11] Right of First Refusal: Holders of Series A Preferred Stock shall have a pro rata right, based on their percentage of fully diluted equity interest in the company, with an undersubscription right up to the total number of shares being offered, to participate in subsequent stock issuances.[12] Right of First Refusal and Cosale:
In the event that any of the Founders and existing executive management propose to sell their stock to third parties, the Company shall have the first right to purchase the securities on substantially the same terms as the proposed sale; the Series A Preferred Stockholders shall next have said right according to respective percentage ownership of Series A Preferred Stock or to sell proportionate percentage pursuant to cosale rights. Such rights shall terminate upon a Qualified Public Offering. Other Provisions: The purchase agreement shall include standard and customary representations and warranties of the Company, and the other agreements prepared to implement this financing shall contain other standard and customary provisions. Definitive agreements will be drafted by counsel to the Investors. This term sheet is intended by the parties to be nonbinding.[13] Expenses: The Company will reimburse the holders of Series A Preferred Stock for reasonable legal fees in connection with the transaction, payable at closing and only in the event that the transactions contemplated by this term sheet are consummated, up to a limit of $25,000.[14] Conditions to Closing: Closing shall be subject to the standard and customary conditions, including the completion of due diligence and the delivery to the investors of a legal opinion of counsel to the Company, regarding standard and customary matters and satisfactory to the Investors and their legal counsel.[15]
By:
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