SUMMARY OF TERMS FOR SERIES A PREFERRED STOCK FINANCING OF QUILLEN TECHNOLOGIES, INC.
CONFIDENTIAL — FOR DISCUSSION PURPOSES ONLY
This term sheet summarizes the principal terms of the proposed Series A Preferred Stock financing of Quillen Technologies, Inc. (the "Company"). This term sheet is not a legally binding obligation and is subject to the completion of definitive documentation. Except for the sections entitled "Exclusivity" (Section 8.2), "Confidentiality" (Section 8.3), and "Expenses" (Section 8.1), no legally binding obligations shall be created until definitive agreements are executed and delivered by all parties. No party shall have any obligation to negotiate or enter into any definitive agreement unless and until all such definitive agreements have been fully negotiated, executed, and delivered.
This term sheet has been prepared by Fenwick, Torres & Keane LLP, 200 Clarendon Street, Suite 3400, Boston, MA 02116, on behalf of Quillen Technologies, Inc.
Primary Contacts:
Gregory Navarro, Partner Fenwick, Torres & Keane LLP Tel: (617) 555-4200
Email: gnavarro@inlawlaw.com
Sophie Marchetti, Associate Fenwick, Torres & Keane LLP Tel: (617) 555-4218
Email: smarchetti@inlawlaw.com
SECTION 1: OFFERING TERMS
1.1 Company. Quillen Technologies, Inc., a Delaware C-corporation, with its principal offices located at 88 Garrison Street, Floor 4, Boston, MA 02116. The Company was incorporated on July 12, 2023, under the laws of the State of Delaware (Delaware Secretary of State File Number 7384219).
The Company is the developer of "Mosaic," an AI-driven portfolio analytics and risk-attribution platform sold on a Software-as-a-Service (SaaS) subscription basis. Mosaic is designed to serve institutional asset managers, pension consultants, endowments, and other sophisticated allocators of capital by providing advanced factor-based risk decomposition, scenario analysis, and real-time portfolio attribution across multi-asset class portfolios.
1.2 Securities. Series A Preferred Stock of the Company (the "Series A Preferred"), the rights, preferences, privileges, and restrictions of which shall be set forth in the Company's Amended and Restated Certificate of Incorporation, substantially in the form to be agreed upon by the parties and filed with the Delaware Secretary of State prior to or concurrently with the closing of the Financing.
1.3 Aggregate Proceeds
Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) in aggregate gross proceeds (the "Financing"), representing new-money investment by the Investors identified below. This amount does not include the additional shares of Series A Preferred to be issued upon conversion of the outstanding convertible notes described in Section 1.10 below.
1.4 Investors. The following investors (collectively, the "Investors") shall purchase shares of Series A Preferred in the amounts set forth opposite their respective names:
1.5 Price Per Share
Five Dollars ($5.00) per share of Series A Preferred (the "Original Purchase Price").
1.6 Pre-Money Valuation
Fifty-Seven Million Five Hundred Thousand Dollars ($57,500,000) on a fully diluted basis, calculated to include all outstanding shares of Common Stock, all outstanding shares of Series Seed Preferred Stock (on an as-converted basis), all outstanding options (whether vested or unvested), and the expanded option pool described in Section 1.11 below, but excluding the shares of Series A Preferred to be issued in the Financing and the shares to be issued upon conversion of the outstanding convertible notes.
1.7 Post-Money Valuation
Eighty Million Dollars ($80,000,000), calculated as the sum of the pre-money valuation of $57,500,000 plus the aggregate new-money investment of $22,500,000. This post-money valuation is presented for illustrative purposes and does not include shares issued upon conversion of the outstanding convertible notes described in Section 1.10 below.
1.8 Shares Issued
A total of 4,500,000 shares of Series A Preferred shall be issued to the new-money Investors at the closing of the Financing, allocated as follows:
Additional shares of Series A Preferred shall be issued upon conversion of the outstanding convertible notes as described in Section 1.10 below.
1.9 Capitalization. The pre-money fully diluted capitalization of the Company, giving effect to the option pool increase described in Section 1.11 below but prior to the issuance of shares in the Financing and the conversion of the outstanding convertible notes, is as follows:
For purposes of calculating the pre-money valuation set forth in Section 1.6, the Company has used a fully diluted share count of approximately 11,500,000 shares (which represents the outstanding Common Stock, outstanding Series Seed Preferred Stock on an as-converted basis, and the expanded option pool of 3,000,000 shares, but calculated for valuation purposes in the manner agreed by the parties). The existing option pool under the Company's 2023 Equity Incentive Plan currently authorizes 2,000,000 shares, of which 1,200,000 have been granted and 800,000 remain unissued. The option pool is to be expanded to 3,000,000 shares prior to the closing as described in Section 1.11 below, resulting in 1,800,000 unissued shares in the option pool post-closing.
1.10 Convertible Note Conversion
The Company has outstanding convertible promissory notes with an aggregate original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000), issued on March 15, 2024 (collectively, the "Notes"). The Notes bear simple interest at a rate of six percent (6%) per annum and were originally issued with a maturity date that has been extended to June 30, 2026. The Notes provide for conversion into equity securities at the lower of (a) a twenty percent (20%) discount to the price per share paid in a qualified financing, or (b) the price per share implied by a valuation cap of Twenty-Five Million Dollars ($25,000,000).
The holders of the Notes (the "Note Holders") and their respective principal amounts are as follows:
Conversion Mechanics. At the closing of the Financing, all outstanding Notes shall automatically convert into shares of Series A Preferred at the lower of:
(a) a twenty percent (20%) discount to the Series A price per share ($5.00 × 0.80 = $4.00 per share); or
(b) the price per share derived from the valuation cap ($25,000,000 ÷ 12,500,000 fully diluted pre-money shares = $2.00 per share).
Because the valuation cap price of $2.00 per share is lower than the discounted price of $4.00 per share, the conversion price shall be $2.00 per share (i.e., the valuation cap controls).
Estimated Accrued Interest. Assuming a closing date of June 15, 2026, the Notes will have been outstanding for approximately twenty-seven (27) months from the original issuance date of March 15, 2024. The estimated accrued and unpaid simple interest on the Notes at closing is calculated as follows:
$1,500,000 × 6.00% × (27 ÷ 12) = $202,500
Total Conversion Amount. The total amount converting into Series A Preferred (principal plus estimated accrued interest) is:
$1,500,000 + $202,500 = $1,702,500
Shares Issued on Conversion. At the conversion price of $2.00 per share, the Note Holders shall receive an aggregate of approximately 851,250 shares of Series A Preferred ($1,702,500 ÷ $2.00 = 851,250 shares). These shares shall be issued concurrently with the closing of the Financing and shall have the same rights, preferences, privileges, and restrictions as all other shares of Series A Preferred issued in the Financing, except that the Original Purchase Price for purposes of calculating the Liquidation Preference Amount with respect to such converted shares shall be $2.00 per share (i.e., the conversion price at which such shares were issued).
1.11 Option Pool Increase
Prior to the closing of the Financing, the Company's 2023 Equity Incentive Plan shall be amended to increase the total number of shares of Common Stock reserved for issuance thereunder from 2,000,000 shares to 3,000,000 shares, representing a net increase of 1,000,000 shares. After giving effect to the 1,200,000 options previously granted under the plan, the unissued and available option pool post-closing shall consist of 1,800,000 shares (800,000 existing unissued shares plus 1,000,000 newly authorized shares).
The dilution resulting from the option pool increase shall be borne entirely by the pre-Series A stockholders, including the holders of Common Stock and the holders of Series Seed Preferred Stock (on an as-converted basis), and shall not dilute the Series A Preferred stockholders. The option pool increase is reflected in the pre-money valuation set forth in Section 1.6 above.
SECTION 2: TERMS OF SERIES A PREFERRED STOCK
The following rights, preferences, privileges, and restrictions shall attach to the Series A Preferred and shall be set forth in the Company's Amended and Restated Certificate of Incorporation:
2.1 Dividends. Holders of the Series A Preferred shall be entitled to receive non-cumulative dividends at a rate of eight percent (8%) per annum on the Original Purchase Price (i.e., $0.40 per share per annum), payable when and if declared by the Board of Directors of the Company, in preference to any dividends declared or paid on shares of Common Stock. No dividends shall be paid or declared on the Common Stock in any fiscal year unless and until all dividends declared on the Series A Preferred with respect to such fiscal year have been paid in full. In the event that dividends are paid on the Common Stock, the holders of Series A Preferred shall be entitled to participate in such dividends on an as-converted basis, pro rata with the holders of Common Stock.
For the avoidance of doubt, the dividends on the Series A Preferred are non-cumulative, meaning that if the Board of Directors does not declare a dividend in any given period, the right to receive such dividend for that period shall not accrue and shall be permanently forfeited.
2.2 Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, or upon the occurrence of any Deemed Liquidation Event (as defined below), the assets of the Company legally available for distribution to stockholders shall be distributed in the following order of priority:
First, the holders of the Series A Preferred shall be entitled to receive, prior to and in preference to any distribution of the assets or proceeds of the Company to the holders of Common Stock or Series Seed Preferred Stock, an amount per share equal to the Original Purchase Price per share of Series A Preferred, plus any dividends declared but unpaid thereon (the "Liquidation Preference Amount").
Deemed Liquidation Events. Each of the following events shall constitute a "Deemed Liquidation Event" unless the holders of a majority of the then-outstanding shares of Series A Preferred elect otherwise by written notice delivered to the Company prior to the consummation of such event:
(a) any merger, consolidation, reorganization, or similar transaction (whether or not the Company is the surviving entity) in which the stockholders of the Company immediately prior to such transaction hold, immediately following such transaction, less than fifty percent (50%) of the voting power of the surviving or resulting entity (or its parent); or
(b) a sale, exclusive license, or other disposition of all or substantially all of the assets, intellectual property, or business of the Company to any person or entity (or group of affiliated persons or entities) in a single transaction or a series of related transactions.
The holders of a majority of the then-outstanding shares of Series A Preferred, voting as a separate class, may waive the treatment of any particular transaction as a Deemed Liquidation Event.
2.3 Conversion. Optional Conversion. Each share of Series A Preferred shall be convertible, at the option of the holder thereof, at any time and from time to time, into shares of Common Stock at an initial conversion ratio of one (1) share of Common Stock for each one (1) share of Series A Preferred (i.e., an initial conversion rate of 1:1). The conversion ratio shall be subject to customary adjustments for stock splits, reverse stock splits, stock dividends, combinations, reclassifications, and similar events affecting the Common Stock.
Automatic Conversion. Each share of Series A Preferred shall be automatically converted into shares of Common Stock at the then-applicable conversion ratio upon the earliest to occur of:
(a) the closing of an underwritten public offering of shares of Common Stock of the Company pursuant to an effective registration statement under the Securities Act of 1933, as amended, with aggregate gross proceeds to the Company (before deducting underwriting discounts, commissions, and expenses) of at least Fifty Million Dollars ($50,000,000) and at a price per share to the public of at least three times (3x) the Original Purchase Price (i.e., at least $15.00 per share) (a "Qualified IPO"); or
(b) the written consent or affirmative vote of the holders of a majority of the then-outstanding shares of Series A Preferred, voting as a separate class.
2.4 Anti-Dilution. The Series A Preferred shall be entitled to broad-based weighted-average anti-dilution protection in the event the Company issues additional shares of Common Stock (or securities convertible into or exercisable for Common Stock) at a price per share less than the then-applicable conversion price for the Series A Preferred (a "Down Round"). In the event of a Down Round, the conversion price of the Series A Preferred shall be adjusted using the broad-based weighted-average formula as set forth in the Amended and Restated Certificate of Incorporation.
The following issuances shall be excluded from the anti-dilution adjustment (each, an "Excluded Issuance"):
(a) shares of Common Stock (or options to purchase shares of Common Stock) issued or issuable to employees, officers, directors, consultants, or advisors of the Company pursuant to the Company's 2023 Equity Incentive Plan (or any successor plan) approved by the Board of Directors, including the approval of a majority of the Preferred Directors;
(b) shares of Common Stock issued upon conversion of the Series A Preferred or any other outstanding convertible securities;
(c) shares of Common Stock issued in connection with bona fide strategic transactions (including joint ventures, technology licensing arrangements, or equipment leasing transactions) approved by the Board of Directors, including the approval of a majority of the Preferred Directors;
(d) shares of Common Stock issued in connection with a Qualified IPO;
(e) shares of Common Stock issued upon the exercise of warrants outstanding as of the date of the closing; and
(f) other customary carve-outs as may be mutually agreed upon in the definitive transaction documents.
2.5 Voting Rights
General Voting Rights. Each holder of Series A Preferred shall be entitled to the number of votes equal to the number of shares of Common Stock into which such holder's shares of Series A Preferred are then convertible (initially, on a one-to-one basis). The holders of Series A Preferred shall vote together with the holders of Common Stock as a single class on all matters submitted to a vote of the stockholders of the Company, except as otherwise required by law or as set forth in the Amended and Restated Certificate of Incorporation.
Protective Provisions. So long as any shares of Series A Preferred remain outstanding, the Company shall not, without the prior written consent or affirmative vote of the holders of a majority of the then-outstanding shares of Series A Preferred, voting as a separate class:
(a) amend, alter, or repeal any provision of the Company's Certificate of Incorporation or Bylaws in a manner that adversely affects or changes the rights, preferences, privileges, or restrictions of the Series A Preferred;
(b) increase or decrease the total number of authorized shares of Series A Preferred Stock;
(c) authorize or issue, or obligate the Company to issue, any equity security (including any security convertible into or exercisable for any equity security) having rights, preferences, or privileges senior to or on parity with the Series A Preferred with respect to dividends, liquidation preference, redemption, or voting;
(d) consummate any Deemed Liquidation Event (including any merger, consolidation, reorganization, or sale of all or substantially all of the Company's assets);
(e) redeem, repurchase, or otherwise acquire any shares of the Company's capital stock (other than repurchases of unvested shares from employees, officers, directors, consultants, or advisors of the Company upon termination of service at the lower of cost or fair market value, pursuant to agreements approved by the Board of Directors);
(f) declare or pay any dividend or make any other distribution on any shares of the Company's capital stock;
(g) increase or decrease the authorized size of the Board of Directors of the Company;
(h) materially change the Company's principal line of business or enter into any new line of business that is materially different from the Company's existing business as described in Section 1.1 above; or
(i) create or hold capital stock in any subsidiary that is not wholly owned by the Company, or sell, transfer, or otherwise dispose of capital stock of any direct or indirect wholly owned
2.6 Redemption. None. The Series A Preferred shall not be subject to any mandatory or optional redemption provisions. This provision may be revisited in definitive documentation.
SECTION 3: INVESTOR RIGHTS
The following rights shall be set forth in an Investors' Rights Agreement, to be entered into by and among the Company, the Investors, and the Key Holders at the closing of the Financing:
3.1 Information Rights
Each holder of at least 500,000 shares of Series A Preferred (or Common Stock issued upon conversion thereof), or such lesser number of shares as the Board may determine from time to time (a "Major Investor"), shall be entitled to receive the following financial and other information from the Company:
(a) Annual Financial Statements. As soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company for such fiscal year, prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), audited by a nationally or regionally recognized independent accounting firm selected by the Company and approved by the Board of Directors.
(b) Annual Operating Budget. A comprehensive annual operating budget and business plan for the upcoming fiscal year, including projected income statements, balance sheets, and cash flow statements, to be approved by the Board of Directors and delivered to each Major Investor no later than
(c) Monthly Financial Statements. As soon as practicable, but in any event within thirty (30) days after the end of each calendar month, unaudited consolidated financial statements of the Company for such month, including a balance sheet, income statement, and statement of cash flows, prepared in accordance with GAAP (subject to the absence of footnotes and year-end adjustments), together with a comparison to the approved operating budget and a brief narrative summary of material developments.
The information rights set forth in this Section 3.1 shall terminate upon the closing of a Qualified IPO of the Company, at which time the Company's reporting obligations shall be governed by the Securities Exchange Act of 1934, as amended, and the rules and regulations of the applicable securities exchange.
3.2 Registration Rights
The following registration rights shall be set forth in the Investors' Rights Agreement:
Demand Registration. At any time after the earlier of (a) five (5) years from the closing date of the Financing, or (b) one hundred eighty (180) days following the effective date of the Company's initial public offering of Common Stock, the holders of at least a majority of the then-outstanding registrable securities may request, on not more than two (2) occasions, that the Company file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the resale of all or a portion of such holders' registrable securities. The Company shall use commercially reasonable efforts to cause such registration statement to become effective as promptly as practicable. A demand registration shall not be deemed to have been effected unless the registration statement has been declared effective and has remained effective for a period of at least one hundred twenty (120) days (or such shorter period in which all registrable securities have been sold).
S-3 Registration. At any time after the Company becomes eligible to file a registration statement on Form S-3 (or any successor form), the holders of registrable securities may request an unlimited number of registrations on Form S-3, provided that the aggregate offering price of the registrable securities to be sold exceeds One Million Dollars ($1,000,000) per registration. The Company shall not be required to file more than two (2) such registration statements in any twelve-month period.
Piggyback Registration. If the Company proposes to register any of its equity securities under the Securities Act (other than on Form S-4 or Form S-8 or their equivalents), each holder of registrable securities shall have the right to include its registrable securities in such registration ("piggyback registration"), subject to customary underwriter cutbacks applied on a pro rata basis among all holders exercising piggyback registration rights.
Registration Expenses. The Company shall bear all expenses incurred in connection with any demand registration, S-3 registration, or piggyback registration, including but not limited to registration fees, filing fees, printing expenses, fees and disbursements of counsel to the Company, and fees and disbursements of one special counsel to the selling holders (not to exceed $50,000 per registration). The Company shall not bear underwriting discounts, selling commissions, or transfer taxes attributable to the sale of registrable securities by the selling holders.
Lock-Up / Market Standoff Agreement. Each Investor agrees that, upon the request of the Company or the managing underwriter in connection with the Company's initial public offering, such Investor shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) for a period of up to one hundred eighty (180) days following the effective date of the registration statement for the Company's initial public offering (or such longer period as may be required by the managing underwriter, up to a maximum of one hundred eighty (180) days). The Company shall use commercially reasonable efforts to obtain a similar lock-up agreement from each of its directors, officers, and holders of more than one percent (1%) of its outstanding capital stock.
3.3 Pro Rata Rights / Right of First Offer
Each Major Investor shall have a right of first offer to purchase its pro rata share of any new securities (as defined in the Investors' Rights Agreement) proposed to be issued and sold by the Company in any subsequent equity financing (a "Subsequent Financing"), at the same price and on the same terms as such new securities are proposed to be offered to third parties. For purposes of this Section 3.3, a Major Investor's "pro rata share" shall be determined based on such Major Investor's percentage ownership of the Company's outstanding capital stock on a fully diluted basis, calculated immediately prior to the issuance of the new securities in such Subsequent Financing.
The Company shall provide each Major Investor with written notice of any proposed Subsequent Financing at least prior to the anticipated closing thereof, specifying the material terms of the proposed issuance (including the type and number of securities, the price per security, and the identity of the proposed purchasers). Each Major Investor shall have from the date of receipt of such notice to exercise its right of first offer by delivering written notice to the Company of its election to purchase up to its pro rata share of the new securities. Any portion of the new securities not subscribed for by the Major Investors within such period may be offered and sold by the Company to third parties on terms no more favorable to such third parties than those offered to the Major Investors.
The following issuances shall be excluded from the pro rata rights set forth in this Section 3.3: (a) issuances under the Company's 2023 Equity Incentive Plan (or any successor plan); (b) issuances upon conversion of the Series A Preferred or any other outstanding convertible securities; (c) issuances in connection with bona fide strategic transactions approved by the Board; (d) issuances in connection with a Qualified IPO; and (e) other customary exclusions as set forth in the Investors' Rights Agreement.
3.4 Board Observation Rights
Any Major Investor that does not have the right to designate a member of the Board of Directors shall have the right to designate one (1) representative (the "Observer") to attend and observe all regular and special meetings of the Board of Directors and all meetings of committees thereof, in a non-voting, observer capacity. The Observer shall receive the same notice, information, and materials provided to the directors in connection with each such meeting, at the same time and in the same manner as such materials are provided to the directors.
Notwithstanding the foregoing, the Company may exclude the Observer from any portion of a Board or committee meeting, and may withhold any information or materials from the Observer, to the extent that the Board determines in good faith that such exclusion or withholding is necessary to (a) preserve the attorney-client privilege between the Company and its legal counsel, (b) address a conflict of interest between the Company and the Investor that designated such Observer, or (c) comply with applicable legal or contractual obligations.
SECTION 4: BOARD OF DIRECTORS AND GOVERNANCE
4.1 Board Composition
Effective as of the closing of the Financing, the Board of Directors of the Company (the "Board") shall consist of five (5) members, constituted as follows:
(a) Common Stock Directors. Two (2) directors shall be designated by, and elected by the vote of, the holders of a majority of the outstanding shares of Common Stock, voting as a separate class. The initial Common Stock Directors shall be Dr. Amara Osei and Julian Voss.
(b) Series A Preferred Directors. Two (2) directors shall be designated by, and elected by the vote of, the holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class. The initial Series A Preferred Directors shall be one (1) individual designated by Pinnacle Venture Fund II LP and one (1) individual designated by Blackthorn Growth Fund III LP. The
(c) Independent Director. One (1) director who qualifies as independent under the applicable standards of the New York Stock Exchange or Nasdaq Stock Market (as determined by the Board in good faith) shall be mutually agreed upon by the holders of a majority of the outstanding Common Stock and the holders of a majority of the outstanding Series A Preferred Stock, each voting as a separate class. The initial Independent Director shall be identified and approved by the parties prior to or promptly following the closing of the Financing.
The foregoing board composition shall be implemented and maintained through a Voting Agreement to be entered into by and among the Company, the Investors, the Key Holders, and such other stockholders of the Company as may be required, pursuant to which each such party shall agree to vote all shares held by such party in favor of the election and continued service of the directors designated in accordance with this Section 4.1.
4.2 Board Meetings
The Board shall meet no less frequently than once per calendar quarter, either in person or by video or telephone conference. Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, or any two (2) directors upon not less than forty-eight (48) hours' prior written notice to all directors (unless waived by the director entitled to such notice).
Each Investor-designated director shall be entitled to customary indemnification by the Company to the fullest extent permitted by the General Corporation Law of the State of Delaware, as set forth in the Company's Amended and Restated Certificate of Incorporation and Bylaws and in an individual Indemnification Agreement to be entered into between the Company and each such director at or prior to the closing. The Company shall maintain directors' and officers' liability insurance coverage ("D&O Insurance") in an amount of not less than Five Million Dollars ($5,000,000) (or such greater amount as the Board may determine from time to time), with terms and from carriers reasonably
The Company shall reimburse each non-employee director for reasonable out-of-pocket expenses incurred in attending Board and committee meetings, upon presentation of receipts and other supporting documentation in accordance with the Company's expense reimbursement policies.
4.3 Drag-Along. If (a) the holders of a majority of the then-outstanding shares of Common Stock (voting as a separate class) and (b) the holders of a majority of the then-outstanding shares of Preferred Stock (including the Series Seed Preferred Stock and the Series A Preferred, voting together as a single class on an as-converted basis) approve a Deemed Liquidation Event (a "Drag-Along Transaction"), then all stockholders of the Company who are parties to the Voting Agreement (and the shares held by them) shall be required to:
(i) vote all shares of capital stock of the Company held by such stockholder in favor of the Drag-Along Transaction at any meeting of stockholders called for such purpose (or execute a written consent in lieu thereof);
(ii) refrain from exercising any dissenters' or appraisal rights that may be available under applicable law with respect to such Drag-Along Transaction; and
(iii) take all other actions reasonably necessary or desirable to consummate the Drag-Along Transaction, including executing and delivering such agreements, instruments, and documents as may be required in connection therewith.
The drag-along obligation shall be subject to customary exceptions and protections, including: (a) each stockholder shall be required to make only those representations, warranties, and covenants pertaining to such stockholder's ownership and authority (and not with respect to the Company's business); (b) each stockholder's liability in connection with the Drag-Along Transaction (other than for breach of such stockholder's own representations) shall be limited to such stockholder's pro rata share of any escrow, holdback, or adjustment obligation; and (c) all stockholders shall receive the same form and amount of consideration per share (or, in the case of holders of Preferred Stock, no less than the applicable liquidation preference) as all other holders of the same class or series of capital stock.
SECTION 5: RESTRICTIONS ON TRANSFER
The following restrictions on transfer shall be set forth in a Right of First Refusal and Co-Sale Agreement to be entered into by and among the Company, the Investors, and the Key Holders at the closing of the Financing:
5.1 Right of First Refusal
The Company shall have a right of first refusal ("ROFR") on any proposed transfer, sale, assignment, pledge, encumbrance, or other disposition of shares of the Company's capital stock (or any interest therein) by any Key Holder (as defined below). For purposes of this Section 5, "Key Holders" shall mean each of Dr. Amara Osei, Julian Voss, and any other holder of more than one percent (1%) of the Company's outstanding Common Stock (on an as-converted, fully diluted basis) who is a party to the Right of First Refusal and Co-Sale Agreement.
Prior to any proposed transfer to a third party, the transferring Key Holder shall deliver a written notice (the "Transfer Notice") to the Company and the Investors, specifying: (a) the number of shares proposed to be transferred; (b) the identity of the proposed transferee; (c) the proposed price per share and other material terms of the proposed transfer; and (d) such other information as may be reasonably requested by the Company or the Investors. The Company shall have fifteen (15) days from the date of receipt of the Transfer Notice to exercise its ROFR to purchase all (but not less than all) of the shares specified in the Transfer Notice at the price and on the terms specified therein.
If the Company does not exercise its ROFR within the applicable period, the Investors shall have a secondary right of first refusal to purchase, on a pro rata basis (based on each Investor's percentage ownership of the Series A Preferred), all or any portion of the shares not purchased by the Company, on the same terms and conditions as set forth in the Transfer Notice. The Investors shall have ten (10) days from the expiration of the Company's exercise period to exercise their secondary right of first refusal.
5.2 Co-Sale Rights (Tag-Along)
If any Key Holder proposes to transfer any shares of the Company's capital stock to a third party, and neither the Company nor the Investors have exercised their respective rights of first refusal with respect to all such shares, each Investor shall have the right (but not the obligation) to participate in such transfer on a pro rata basis (based on the number of shares held by such Investor relative to the total number of shares held by the transferring Key Holder and all participating Investors) on the same terms and conditions as those offered to the transferring Key Holder.
Each Investor may exercise its co-sale right by delivering written notice to the transferring Key Holder and the Company within fifteen (15) days of receiving the Transfer Notice (or, if the Company and/or Investors have partially exercised their rights of first refusal, within ten (10) days after the final determination of the shares available for co-sale). If any Investor exercises its co-sale right, the number of shares that the transferring Key Holder may sell in the proposed transfer shall be correspondingly reduced.
5.3 Lock-Up. Each Key Holder shall agree, in connection with the Company's initial public offering, to enter into a market standoff or lock-up agreement with the Company and the managing underwriter, pursuant to which such Key Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company for a period of up to one hundred eighty (180) days following the effective date of the registration statement in connection with the Company's initial public offering, on such terms as may be reasonably required by the managing underwriter.
SECTION 6: FOUNDER MATTERS
6.1 Founder Vesting
All shares of Common Stock held by each of the Company's founders, Dr. Amara Osei and Julian Voss, shall be subject to the Company's right of repurchase, which right shall lapse in accordance with the following vesting schedule:
Vesting Schedule. Each founder's shares shall vest over a period of four (4) years from the closing date of the Financing, with a one (1) year cliff. Twenty-five percent (25%) of the total shares subject to vesting shall vest on the first anniversary of the closing date, and the remaining seventy-five percent (75%) shall vest in equal monthly installments over the succeeding thirty-six (36) months of continuous service.
Vesting Credit. In recognition of each founder's service to the Company since its incorporation in July 2023, each founder shall receive a vesting credit for time served prior to the closing of the Financing. Assuming a closing date of June 15, 2026, each founder will have served the Company for approximately thirty-five (35) months from the date of incorporation. This credit shall equal approximately twenty-five percent (25%) of the total vesting period, representing approximately 8.75 months of vesting credit, which shall be applied against the four-year vesting schedule as agreed by the parties in the definitive documentation.
Repurchase Right. Upon any termination of a founder's continuous service to the Company (whether voluntary or involuntary, and whether with or without cause), the Company shall have the right (but not the obligation) to repurchase all unvested shares held by such founder at a price per share equal to the lower of (a) the original cost per share paid by such founder for such shares, or (b) the then-current fair market value per share, as determined by the Board of Directors in good faith.
6.2 Non-Competition / Non-Solicitation
Each founder shall, at or prior to the closing of the Financing, enter into a non-competition and non-solicitation agreement with the Company (the "Restrictive Covenant Agreement"), which agreement shall contain the following restrictions:
(a) Non-Competition. During the period of such founder's employment with the Company and for a period of two (2) years following the termination of such founder's employment for any reason, such founder shall not, directly or indirectly, engage in, participate in, assist, or have any interest in (whether as an employee, officer, director, partner, agent, consultant, independent contractor, stockholder, or otherwise) any business that is competitive with the Company's business, within any geographic area in which the Company conducts business or has concrete plans to conduct business as of the date of termination.
(b) Non-Solicitation. During the period of such founder's employment with the Company and for a period of two (2) years following the termination of such founder's employment for any reason, such founder shall not, directly or indirectly, (i) solicit, recruit, hire, or induce any employee, consultant, or independent contractor of the Company to leave the Company or to provide services to any other person or entity, or (ii) solicit, divert, or take away any customer, client, supplier, or business relationship of the Company.
The Restrictive Covenant Agreement shall be enforceable to the maximum extent permitted by applicable law. The parties acknowledge that the enforceability of non-competition provisions may be limited under the laws of certain jurisdictions, including the Commonwealth of Massachusetts, and the definitive documentation shall include appropriate provisions to address any such limitations, including blue-pencil and reformation clauses.
6.3 Key Person Insurance
The Company shall, at or promptly following the closing of the Financing, obtain and maintain key person life insurance policies on each of Dr. Amara Osei and Julian Voss, in an amount of not less than Two Million Dollars ($2,000,000) per person, with the Company as the sole beneficiary of each such policy. The Company shall pay all premiums associated with such policies, and such policies shall be maintained for so long as each such individual remains in the employ of the Company, or for such longer period as the Board of Directors may determine.
SECTION 7: CONDITIONS TO CLOSING
7.1 Conditions Precedent
The obligations of the Investors to purchase shares of Series A Preferred at the closing shall be subject to the fulfillment (or waiver by the Lead Investor) of each of the following conditions:
(a) Due Diligence. Satisfactory completion by the Investors of legal, intellectual property, financial, technical, and business due diligence with respect to the Company and its business, assets, liabilities, operations, intellectual property, technology, customers, contracts, employees, and regulatory compliance, in the sole discretion of the Lead Investor.
(b) Definitive Transaction Documents. The negotiation, execution, and delivery by all parties thereto of the following definitive transaction documents, in form and substance reasonably satisfactory to the Lead Investor and its counsel:
(i) Series A Preferred Stock Purchase Agreement;
(ii) Amended and Restated Certificate of Incorporation of the Company;
(iii) Investors' Rights Agreement;
(iv) Voting Agreement;
(v) Right of First Refusal and Co-Sale Agreement;
(vi) Management Rights Letters in favor of each Investor that is an ERISA "venture capital operating company";
(vii) Indemnification Agreements between the Company and each Investor-designated director; and
(viii) such other agreements, instruments, and documents as are customary for transactions of this type or as may be reasonably requested by the Lead Investor.
(c) Certificate of Incorporation. The Amended and Restated Certificate of Incorporation, in the form agreed upon by the parties, shall have been duly filed with and accepted by the Secretary of State of the State of Delaware prior to or concurrently with the closing.
(d) Convertible Note Conversion. All outstanding convertible promissory notes described in Section 1.10 shall have been converted into shares of Series A Preferred concurrently with the closing, in accordance with their terms and on the terms described herein, and no convertible notes shall remain outstanding following the closing.
(e) Board and Stockholder Approval. The Board of Directors and the requisite stockholders of the Company shall have approved the Financing, the issuance of the Series A Preferred, the Amended and Restated Certificate of Incorporation, and all related transactions and agreements.
(f) Legal Opinion. Delivery by the Company's counsel, Fenwick, Torres & Keane LLP, of a legal opinion addressed to the Investors, in form and substance reasonably satisfactory to the Lead Investor and its counsel, Calderwood & Harkness LLP, covering such matters as are customary for transactions of this type, including the due organization and good standing of the Company, the authorization and valid issuance of the Series A Preferred, and the enforceability of the definitive transaction documents.
(g) Closing Certificates. Delivery by the Company of (i) a Secretary's Certificate certifying the Company's Certificate of Incorporation, Bylaws, and Board and stockholder resolutions authorizing the Financing and related transactions; (ii) a Compliance Certificate executed by the Chief Executive Officer of the Company certifying that the representations and warranties of the Company contained in the Stock Purchase Agreement are true and correct in all material respects as of the closing date and that the Company has complied in all material respects with all covenants and conditions required to be performed or satisfied by the closing date; and (iii) such other closing certificates, instruments, and documents as are customary for transactions of this type.
(h) Option Pool Increase. The Company's 2023 Equity Incentive Plan shall have been duly amended to increase the number of shares of Common Stock authorized for issuance thereunder from 2,000,000 shares to 3,000,000 shares, and all requisite Board and stockholder approvals for such amendment shall have been obtained.
(i) No Material Adverse Change. There shall not have occurred, between the date of this term sheet and the closing date, any material adverse change in the business, financial condition, operations, assets, liabilities, or prospects of the Company, as determined in the reasonable judgment of the Lead Investor.
SECTION 8: OTHER MATTERS
8.1 Expenses. This Section 8.1 is a legally binding provision. The Company shall pay or reimburse the reasonable and documented legal fees and out-of-pocket expenses of the Lead Investor's legal counsel, Calderwood & Harkness LLP, incurred in connection with the negotiation, documentation, due diligence, and closing of the Financing and the preparation and review of all definitive transaction documents and related instruments, up to a maximum aggregate amount of Seventy-Five Thousand Dollars ($75,000). Such fees and expenses shall be payable by the Company at the closing by deduction from the purchase price or by wire transfer, as directed by the Lead Investor. In the event that the Financing is not consummated for any reason, the Company shall nonetheless reimburse the Lead Investor for such fees and expenses, subject to the cap set forth above, within thirty (30) days of written demand therefor.
8.2 Exclusivity / No-Shop
This Section 8.2 is a legally binding provision. For a period of forty-five (45) days from the date this term sheet is executed by all parties (the "Exclusivity Period"), the Company and each of its officers, directors, employees, agents, and representatives shall not, directly or indirectly:
(a) solicit, initiate, or encourage (including by way of furnishing non-public information) any inquiries, offers, or proposals from any person or entity (other than the Investors) with respect to any equity or debt financing, merger, consolidation, acquisition, sale of material assets, or any similar transaction involving the Company (each, an "Alternative Transaction");
(b) participate or engage in any discussions or negotiations with any person or entity (other than the Investors) regarding any Alternative Transaction;
(c) enter into any agreement, arrangement, or understanding with any person or entity (other than the Investors) regarding any Alternative Transaction; or
(d) provide any non-public information concerning the Company to any person or entity (other than the Investors) in connection with any Alternative Transaction.
The Company shall promptly notify the Lead Investor (and in any event within two (2) business days) if the Company or any of its representatives receives any inquiry, proposal, or offer from any third party with respect to an Alternative Transaction, including the identity of such third party and the material terms of such inquiry, proposal, or offer.
8.3 Confidentiality. This Section 8.3 is a legally binding provision. Each party to this term sheet shall keep the terms and conditions set forth herein, and the existence and status of the negotiations contemplated hereby, strictly confidential and shall not disclose such information to any third party without the prior written consent of the other parties, except that each party may disclose such information to:
(a) such party's officers, directors, employees, legal counsel, accountants, financial advisors, and other professional advisors who have a reasonable need to know such information in connection with the transactions contemplated by this term sheet and who are bound by obligations of confidentiality no less restrictive than those set forth in this Section 8.3; and
(b) to the extent required by applicable law, regulation, or legal process, provided that the disclosing party provides the other parties with prompt written notice of such requirement (to the extent legally permissible) and cooperates with the other parties in seeking a protective order or other appropriate remedy.
The confidentiality obligations set forth in this Section 8.3 shall survive the termination of this term sheet and any decision not to proceed with the Financing, and shall remain in effect for a period of two (2) years from the date of this term sheet.
8.4 Governing Law
This term sheet, and the definitive transaction documents contemplated hereby, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute arising out of or relating to this term sheet or the definitive transaction documents shall be resolved exclusively in the Court of Chancery of the State of Delaware (or, if the Court of Chancery declines to accept jurisdiction, any state or federal court of competent jurisdiction located in New Castle County, Delaware), and each party hereby irrevocably consents to the personal jurisdiction and venue of such courts.
8.5 Closing Date
The parties shall use commercially reasonable efforts to negotiate and execute the definitive transaction documents, to satisfy or waive all conditions to closing, and to complete the Financing on or before June 15, 2026 (the "Target Closing Date"). The Target Closing Date may be extended by mutual written agreement of the Company and the Lead Investor. If the closing does not occur by the Target Closing Date (as may be extended), this term sheet shall automatically terminate and be of no further force or effect, except that the binding provisions set forth in Sections 8.1, 8.2, and 8.3 shall survive such termination in accordance with their respective terms.
8.6 Finder's Fees
Each party to this term sheet represents and warrants to the other parties that it has not retained, employed, or engaged any finder, broker, agent, or investment banker in connection with the transactions contemplated by this term sheet, and that no such person is entitled to any fee, commission, or other compensation in connection herewith. Each party shall indemnify, defend, and hold harmless each of the other parties from and against any and all claims, losses, damages, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to any breach of the foregoing representation and warranty.
SECTION 9: PRE-SERIES A CAPITALIZATION SUMMARY
The following table sets forth the current capitalization of the Company on a fully diluted basis, prior to the closing of the Financing and prior to the option pool expansion described in Section 1.11:
Note: The option pool under the 2023 Equity Incentive Plan is to be expanded from 2,000,000 shares to 3,000,000 shares prior to the closing of the Financing, representing a net increase of 1,000,000 shares. After giving effect to the expansion, the pre-money fully diluted share count used for valuation purposes is approximately 11,500,000 shares (reflecting the inclusion of the expanded pool in the pre-money capitalization). The dilution from the option pool increase is borne by the pre-Series A stockholders, as described in Section 1.11.
SECTION 10: PRO FORMA POST-SERIES A CAPITALIZATION SUMMARY
The following table sets forth the estimated pro forma capitalization of the Company on a fully diluted basis, giving effect to the closing of the Financing, the conversion of the outstanding convertible notes, and the option pool expansion:
Note: Percentages are calculated on a fully diluted basis and include granted options but exclude the 1,800,000 unissued shares reserved under the expanded 2023 Equity Incentive Plan unless and until such options are granted and exercised. Pinnacle Venture Fund II LP's 2,800,000 shares of Series A Preferred represent approximately 17.2% of the Company's fully diluted capitalization (including the unissued option pool). Percentages are approximate and subject to adjustment based on the final number of shares issued upon conversion of the convertible notes at closing (which will depend on the final accrued interest calculation). The foregoing capitalization summary is provided for illustrative purposes only and is subject to confirmation in connection with the preparation of the definitive transaction documents.
SIGNATURE PAGE
The undersigned parties execute this Summary of Terms for Series A Preferred Stock Financing of Quillen Technologies, Inc. as of the date first set forth above. By executing this term sheet, each party acknowledges and agrees that the provisions of Section 8.1 (Expenses), Section 8.2 (Exclusivity), and Section 8.3 (Confidentiality) are binding upon execution. All other provisions of this term sheet are non-binding and are subject to the negotiation, execution, and delivery of definitive agreements by all parties.
QUILLEN TECHNOLOGIES, INC.
By: ________
Name: Dr. Amara Osei
Title: Co-Founder & Chief Executive Officer
Date: ________
PINNACLE VENTURE FUND II LP
By: Pinnacle Capital Management LLC, its General Partner
By: ________
Name: Sandeep Rajan
Title: Managing Partner & GP Principal
Date: ________
BLACKTHORN GROWTH FUND III LP
By: ________
Name: Diana Hershfield