EFTA00593159.pdf

MEMORANDUM OF TERMS FOR PRIVATE PLACEMENT OF SERIES B PREFERRED STOCK OF ARTSPACE MARKETPLACE, INC. 12/21/2012 the Series B round venture capital This memorandum summarizes the principal terms of (the "comn anv"). The completion of the financing of ARTSPACE MARKETPLACE, INC. among other things, satisfactory be subjec t to, transactions contemplated by this memorandum will Investors, as well as the completion of final completion of financial and legal due diligence by the documents acceptable to the Investors and the Company. OfferInt Terms ation (the Issuer: ARTSPACE MARKETPLACE, INC., a Delaware corpor "Company"). Investor Name Amount Investors: Canaan Partners 55.800.000 Others 51.200.000 $7.000,000 Total Investment: Founders: Chris Vroom & Catherine Levene (the "foam") Securities to be issued: Series B Preferred Stock. 0,000. Price: The per share price shall reflect a pre-money valuation of 517,00 for Comm on Stock and option s availab le The number of shares of Compa ny's stock option plans shall equal 10% of the issuance under the the the closing of fully diluted capitalization of the Company following financing. ny may sell, Expected Closing Date: On or about Jan 21, 2013 (the "Closing"). The Compa ,000 of additional within 90 days following the Closing, up to $1,200 at the Closin g to purchasers shares of Series B Preferred Stock not sold and the Compa ny. Canaa n Partners mutually acceptable to the Investors obliga tion to invest any of $1,200 ,000 not has the option, but not the invested by a 3rd party. EFTA00593159 Terms of Series B Preferred Stock Certificate of Incorporation payable when and Dividends: Annual 8% dividend on the Series B Preferred Stock, nce to any declaration or if declared by Board, and prior and in prefere ds are not cumula tive. For any other payment of other dividends; dividen distrib utions, Preferr ed Stock partici pates with dividends or similar Common Stock on an as-converted basis. the proceeds Liquidation Preference: In the event of a liquidation, dissolution or winding-up, shall be distributed to the stockh olders as follow s: d but unpaid First pay Ix the original purchase price plus declare ed Stock (the "Series B dividends on each share of Series B Preferr payme nt of the forgoin g amounts, Liquidation Preference"). Upon full unpaid purcha se price plus declare d but then pay lx the original of Series A Preferr ed Stock. Any remain ing dividends on each share proceeds shall be paid to the holders of Common Stock. ny, a merger, A sale of all or substantially all of the assets of the Compa other transac tion in which 50% of the outstanding reorganization or ive, irrevocable voting power of the Company is transferred and an exclus ny's intellec tual property licensing of all or substantially all of the Compa a liquida tion event (each a "Liqui dation to a third party will be treated as ing the liquida tion payme nt. The holder s of a Event"), thereby trigger ed Stock majority of the Series A Preferred Stock and Series B Preferr class, togethe r as a single (collectively, the "Preferred Stock"), voting the Series B and which shall include the holders of a majority of Majori ty") may waive the treatment of Preferred Stock (the "Requisite such a transaction as a liquidation event. Redemption: n of holders of Series B Preferred Stock shall be redeemable at the electio on or after five a majority of the outstanding Series B Preferred Stock or as soon thereaf ter as legally years in three equal, annual installments, the origina l purcha se price plus declared, permissible, at a price equal to To the extent that the Comp any's financial but unpaid dividends. ate ble corpor position does not permit such redemption under applica time redeem ed at such laws, any shares required to be redeemed shall be unredeemed shares as the Company is legally able to do so. Holders of have all rights previo usly available to of Series B Preferred Stock shall holders of such stock. be convertible into Conversion: Each share of Series B Preferred Stock shall initially (subjec t to antidil ution adjustment as one share of Common Stock described below) at any time at the holder's option on Stock upon the Automatic Conversion: The Preferred Stock automatically converts into Comm Requis ite Majori ty or (ii) the earlier of (i) the election of the EFTA00593160  a price per share consummation of an underwritten public offering with price for the Series B Preferr ed Stock, and of 4x the original issue "Quali fied Public aggregate gross proceeds in excess of $30,000,000 (a Offering"). adjusted on a Price-Based Antidilution Conversion ratio for Series B Preferred Stock shall be issuanc e below the Adjustments broad-based weighted average basis in the event of an Series B Preferred Stock price, as adjusted. of Common Stock No adjustment shall be made for (i) the sale of shares ees and other service provide rs, approved by the reserved for employ split or similar Board, (ii) Common Stock issued pursuant to a stock conver sion of Preferred reorganization, (iii) Common Stock issued upon tion with a bona fide business Stock, (iv) securities issued in connec public ny, approv ed by the Board , or an initial acquisition by the Compa the entities with which offering, (v) securities issued to persons or ed by es are approv Company has business relationships, which issuanc ing purpos es, (vi) the Board, and for primarily non-equity financ lease financings or securities issued or issuable pursuant to equipment are approv ed by the Board, and for bank credit arrangements that primarily non-equity financi ng purpos es. ds and similar Other Antidilution Proportional adjustments for stock splits and stock dividen Adjustments: events. series vote as Voting Rights: Votes on an as-converted basis, but also has class and Requis ite Majority provided by law. In addition, approval of the any senior or gait passa required on (i) the creation or authorization of on any class of stock, (iii) security, (ii) payment of dividends except Comm on Stock or Preferr ed Stock, redemptions or repurchases of the exercise by the for purchases at cost upon termination of service or such shares, (iv) Company of contractual rights of first refusal over (v) any increas e or decrease in consummation of any Liquidation Event, B Preferr ed Stock or Common the number of authorized shares of Series author ization of any indebte dness in excess of Stock, (vi) creation or B Director, $250,000 unless approved by the Board, including the Series -owned subsid iary or (vii) creation of any subsidiary that is not a wholly or substa ntially of any disposition of any subsidiary stock or all oration of the Certific ate of Incorp subsidiary assets, (iix) any amendment of the Board. or Bylaws and (ix) any increase or decrease in the size Terms ofPreferred Stock Purchase Agreement ny. Representations and Standard representations and warranties by the Compa Warranties: include, among other Conditions to Closing: (a) Standard conditions to Closing, which shall due diligence by the things, satisfactory completion of financial and legal EFTA00593161  Investors. counsel for the (b) Investors shall have received a customary opinion of Company. have entered (c) All current and former employees and consultants shall ny's standa rd form proprie tary inform ation and inventions into the Compa rs. agreement in form and substance acceptable to the Investo ed under "Board of (d) Board composition at Closing shall be as describ Directors" below. on agreements (e) The Company shall have entered into indemnificati affiliat ed funds) in a form acceptable to with the Series B Director (and such director. ce in an amount and (f) The Company shall have obtained D&O insuran upon terms acceptable to the Investors. ce, execution of (g) Any other closing conditions: key man insuran material contracts, etc. ny shall pay, Expenses: Counsel to the Investors will draft documents. The Compa l, not to able fees and expens es of Investo rs' counse at the closing, reason be based on the model exceed $30,000. The financing documents shall NVCA form agreements. Terms of Investor Rights Agreement five years from the Registration Rights: (a) Demand Rights Beginning on the earlier of follow ing the Compa ny's IPO, two demand Closing or six (6) months on by holders registrations for underwritten public offerings upon initiati (or Comm on Stock of at least 50% of outstanding Preferred Stock ed Stock or any combin ation issuable upon conversion of the Preferr excess of 515,00 0,000. Expens es paid thereof) for aggregate proceeds in selling ng expens es of one counse l for the by Company, includi stockholders (not to exceed $35,000). ed Stock will have unlimited (b) Pinvback Rights. Investors in Preferr piggyback registration rights, subjec t to pro rata cutback at the 30% minimum underwriter's discretion. Full cutback upon the IPO; t to cutbac k unless all inclusion thereafter. Investors will not be subjec from registr ation. Expens es paid other selling stockholders are excluded selling es of one counse l for the by Company, including expens stockholders (not to exceed S15,00 0). 53,000,000, each (c) $-3 Rights. Unlimited S-3 Registrations of at least of the outstan ding Preferr ed Stock. upon initiation by holders of 10% Qualified Public Registration rights terminate (i) five years after the one percen t (1%) of the Offering; or (ii) as to any holders of less than EFTA00593162  sold in any 90-day outstanding shares, when such shares held can be period under Rule 144, whichever occurs first. t consent of the No future registration rights may be granted withou subord inate to the Investo rs' rights. Requisite Majority, unless and the Investors Market Stand-Off: Prior to the Closing, all stockholders of the Company shall agree not to sell or otherwise transfe r an interes t in any shares of on Stock owned or contro lled by them Preferred Stock or Comm to the closing of the WO for a period of up to 180 days immediately prior of the F1NRA rules) (subject to extension to comply with Section 2711 officer s of the Compa ny and following the IPO (provided directors and same lock-up ); such agreem ent shall 1% stockholders agree to the to release s from the lock-up be allocat ed provide that any discretionary Such stockh olders holders of registrable securities on a pro-rata basis. agree to sign the underw riter's standa rd lock-up agreement shall also reflecting the foregoing. Series B Preferred Right of First Offer: The Investors holding at least 10% of the shares of a pro rata right, but not an obligat ion, based on their Stock shall have assum ing full percentage equity ownership of Common Stock, conver tible and exercis able conversion and exercise of all outstanding other subseq uent financi ngs of the Compa ny, securities, to participate in (or options than (i) the issuance or sale of shares of Common Stock pursua nt to plans therefor) to employees and similar service providers of securit ies pursua nt to a bona approved by the Board, (ii) the issuance ies offering, (iii) the issuanc e of securit fide, firmly underwritten public or exercis e of conver tible or exercis able pursuant to the conversion with a bona fide securities, (iv) the issuance of securities in connection case as approved by business acquisition of or by the Company, in each B Preferr ed Stock pursuant the Board, (v) the issuance and sale of Series ent (vi) the issuanc e of stock, to the Series B Stock Purchase Agreem which the or rights to person s or entities with warrants or other securities provided Company has business relationships approved by the Board, financi ng purpos es or such issuances are for other than primarily equity the with unanim ous approv al of (vii) the issuance of securities that, existin g rs, are not offered to any Company's Board of Directo by an Compa ny. Any shares not subscr ibed for stockholder of the eligible Investors. Investor may be reallocated pro rata among the other g and will terminate Such right shall not apply to any public offerin immediately prior to a Qualified Public Offerin g. Stock shall receive Financial Information: The Investors holding at least 10% shares of Preferred standard information rights including audited financi al reports within 120 quarter ly unaudi ted financial reports days after the end of the fiscal year, end of each of the first three quarter s, monthly within 45 days after the of the month and unaudited financial reports within 30 days after the end of a fiscal year, as annual budget and business plan prior to the beginning financi al reports shall be well as standard inspection rights. Audited prepared by an accounting firm of nationa l standin g. EFTA00593163  a key person Key Person Insurance: Within 60 days of the Closing, the Company shall obtain rs in the amoun t that is reasonably life insurance policy on the Founde acceptable to Canaan Partne rs. letter providing Management Rights Letter: The Investor shall receive a standard management rights on signific ant issues, access to the for the consultation with management s of the Compa ny, and board visitati on rights. books, records and facilitie Board of Directors Matters of the following: Board of Directors: The Board shall be composed of 5 members, comprised of the holders of (i) two representatives appointed by the majority provid ed that Common Common Stock (the "Founder Designees"); Found ers (one by each Founder), so Designees shall be designated by the (direct ly or indirec tly) more than seventy long as such Founder owns by such Founder as of percent (70%) of the shares of Common Stock held er designated by the date of the Closing; (ii)) one independent board memb er owns (directly or one or both of the Founders, so long as such Found of the shares of Common indirectly) more than seventy percent (70%) with the of the date of the Closin g, Stock held by such Founder as ed of a majori ty of the Series B Preferr approval of the Board and holders majori ty holders of a Stock; (iv) one representative to be appointed by the n (the designe e of Canaa of Series B Preferred Stock, who shall be a one representative "Series B Director"), initially to be Warren Lee and (v) a majori ty of Series A Preferred Stock to be appointed by the holders of or"). Notwit hstand ing the forego ing, (i) in the event (the "Series A Direct as the Company's that one of the Founder Designees is no longer serving rs and the Company's CEO, then the Board shall be expanded to 7 membe s of a nal seat and the holder then-CEO shall be elected to one such additio design ate the ed Stock shall be entitled to majority of the Series B Preferr that a newly created seat and (ii) in the event director to hold the other a er to design ate Founder is terminated "for cause," the right of such Found shall be Found er Design ee Founder Designee shall lapse and such on Stock. "cause" designated by the holders of a majority of the Comm ion of any felony or any crime involvi ng moral turpitude or shall mean (i) convict that results in or of dishone sty dishonesty; (ii) participation in a fraud or act breach of the terms harm the Compa ny; or (iii) any materia l reasonably likely to has not been cured Compa ny that of any material contract with, or policy of, the Compa ny's Board of within thirty (30) days after written notice from the bly subject to cure, or (iv) Directors of such breach, if such breach is reasona Board of Directo rs or repeated and materials failure to follow the directiv es of the of the failure and such to perform job duties, where the Founder has been notified notice from the failure has not been cured within thirty (30) days after written Company's Board of Directors. obtain a directors and Directors and Officers Within 60 days of the Closing, the Company shall in the amoun t and with terms Liability Insurance: officers liability insurance policy acceptable to the Investors. EFTA00593164 Other Matters Employee Common Stock Unless otherwise approved by the Board, e Vesting: vest as follows: after 12 months of empl remainder will vest monthly over the f Company shall have a repurchase option on Restrictions on Common (a) No transfers allowed prior to vestin Stock: planning. (b) Company right of first refusal on vest offering. (c) No transfers or sales permitted during days as required by underwriters in corm the Company. (d) The number of authorized shares of Co or decreased upon the approval of the outstanding shares of the Company's capit 242 of the DGCL. Right of First Refusal and Until the Qualified Public Offering, each I Co-Sale Right: the shares of Preferred Stock shall have rata basis in transfers of any stock held b first refusal on such transfers, subordinate refusal. Any shares not subscribed for by pro rata among the other eligible Investo co-sale shall not apply, in the case of an in spouse or member of Founder's immedi planning transfers, (b) any sale to the p registration. Drag-Along Right: In the event of a sale of the Corn recapitalization, sale of all or substantiall assets or otherwise (a "Proposed Sale"), Board, (ii) the majority of the holders o include each Founder who owns (dire seventy percent (70%) of the shares of Founder as of the date of the Closing, and remaining stockholders of the Company consent to, transfer their shares of capital other action as may be required Notwithstanding the foregoing, in the ev "for cause," the approval of such Found connection with a Proposed Sale under su Capitalization All Class B Common Stock will be cony in conjunction with the financing to eli EFTA00593165  will be entitled and to provide that each share of Class A Common stock to only one vote per share. are subject to Existing Investor The terms and conditions contained in this term sheet g organi zationa l documents Documents Canaan's review of the Company's existin the existin g Preferr ed Stock and the and agreements with the holders of terms and conditions set forth therein . the terms of this Publicity: Except as required by law, the Company will not discuss than key officer s, membe rs of the Term Sheet with any person other or the Compa ny's accoun tants or attorneys Board of the Company the Company shall without the written consent of Investor. In addition, t or format (including not use an Investor's name in any manner, contex release s, etc.) without the prior reference on or links to websites, press approval of such Investor. P.M. EST Time No Shop: From the signing date hereof until the earlier of (i) 12:00 written notification by on February 4, 2012, (ii) the Closing or (iii) not intend to procee d with the Canaan Venture Partners that it does that it shall not solicit, encour age others financing, the Company agrees or accept any offers for the purcha se or acquis ition to solicit, encourage of the ntial part of any capital stock of the Company, of all or any substa idation any merge r or consol assets of the Company, or proposals for enter into any involving the Company, and it shall not negotiate with or with any other person with respec t to any agreement or understanding to provid ed that this No-Sh op provis ion shall not apply such transaction, the above) to purcha se the Company seeking "Others" (as contemplated terms contemplated balance of the Series B Preferred Stock on the hereby. Interested Parties Company: Catherine Levene & Chris Vroom Arts ace Marketplace, Inc. New York, New York 1 10 Pho : Fax: e-mat Investors: Warren Lee Canaan Partners Westport CT 80 Phone: e-mail: EFTA00593166  ding and is intended solely as a summary of Except as set forth below, this term sheet is nonbin parties. The parties acknowledge that they neither intend to the terms that are currently proposed by the definitiv e agreement pursuant to this term negotiate a enter, nor have they entered into, any agreement to definitiv e agreement, propose different to executio n of such sheet, and either party may, at any time prior negotia tions pursuant to this term sheet ally terminate all terms from those summarized herein or unilater be solely liable for all of its own fees, the other party. Each party shall without any liability whatsoever to prepara tion of a final agreem ent pursuant to tion and costs and other expenses in conjunction with negotia this tarn sheet. that only the provisions set forth in the The parties hereto understand and acknowledge shall be binding upon the panics hereto. "Publicity" and "No Shop" paragraphs above the Company. please so indicate on the If the terms of this memorandum are acceptable to undersi gned no later than 12:00 P.M. on Dec 21. enclosed copy of this memorandum and return it to the 2012. Artspace Marketplace. Inc. By: _ •