The Art of Living Building 1141 South Seventh Street St. Louis, Missouri 63104 www.TheIncubationFactory.com
May 21, 2012
To: (Sponsor Name) From: The Incubation Factory (“TIF”) Re: Term Sheet
Dear (First Name): We are excited to propose the following terms that contemplate an engagement that establishes you as a founding TIF Branch Sponsor candidate. Please note that by joining TIF as a Sponsor, you will hold the responsibility as an owner in (TIF Branch Name) (“Branch”), meaning you have the responsibility to safeguard all corporate documents, trade secrets and proprietary information. We look forward to a successful partnership! Sincerely,
Angela O’Connor Vice President of Marketing for The Incubation Factory, LLC and Anthony, Allan & Quinn, Inc.
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Recitals: This is a nonbinding term sheet that is intended to summarize the terms of a business relationship between the Sponsor (as defined herein) and TIF. The parties understand that before creating binding obligations, the parties must complete and execute definitive agreements that set forth the complete understanding of the parties with respect to the matters set out in this Term Sheet. Sponsor: (NAME) is an individual or organization who desires to become a member (“Sponsor”) in a newly formed limited liability company (“LLC”) to be called (TIF Branch Name). The Sponsor’s responsibilities include identifying and recruiting 3-5 advisory board member candidates, soliciting $1MM in Branch seed money, approving technologies for placement into the Branch and assisting in governance of that Branch as a TIF advisory council member. The Incubation Factory (TIF) TIF has developed an economic development platform that specializes in the TechTransfer Industry, including targeting Tech Transfer Organizations tied to Universities and Government Laboratories as well as inventor entrepreneurs. The TIF engine includes various methods, tools, funding mechanisms and processes designed to identify, launch, accelerate and govern successful new innovations into successful commercial enterprises. Definitions: Company Advisory Board Member: Technologies selected for the TIF Portfolio or TIF Branches are in need of Advisory Board Members who are Subject Matter Experts (“SME’s”) in the targeted industry. Branch Management Team (“FMT”): Is comprised of the TIF Branch Sponsor and TIF Branch Advisory Board Members: TIF Business Development Executive (“BDE”): The primary role of the BDE position is to establish a pipeline of unique technologies and corresponding new companies within TIF. The objective for this position is to identify technologies that meet the TIF profile requirements. TIF Executive Team: Provides management oversight, strategic governance and management of TIF TIF Branchs and associated portfolio companies. Additional responsibilities include continuous process improvement and infrastructure support across all entities.
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TIF Front-End Marketing Group: This group focuses on; sourcing technologies, vetting technologies, performing diligence and defining a targeted go-to-market model. This group serves as the “Top of the Funnel” in bringing the raw materials (technologies) into TIF. The TIF front-end marketing group’s responsibilities include; recruitment of qualified resources, training on proper technology Identification, target management, channel management (University Partners, Federal Labs, Companies, Attorneys, etc), marketing & promotion, technology diligence and oversight of the technology vetting process and technology licensing. TIF Branch: Geographically defined, or industry focused TIF Branch, which commercializes up to twenty technologies which are earmarked to reside in the TIF Branch. TIF Branch Advisory Board Member: A critical component to the success of a TIF Branch, these Advisory Board Members participate in: approving technologies, local branding and awareness, quarterly status meetings for the Branch’s progress, and giving input or advice to other TIF Branches. TIF Branch Principal: One of two senior leaders of a TIF Branch, the Principal works directly with TIF to manage the portfolio companies within a TIF Branch. This is a senior position which helps establish portfolio companies and is involved in all stages of planning, organizing, leading, staffing and governing a technology from start-up to maturity. TIF Portfolio: Comprised of an infinite number of companies in which TIF holds an equity position. TIF Senior Business Development Executive (SBDE): This position is designed for the BDE who has successfully established two companies in the TIF Portfolio or in a TIF Branch and maintains a desire and aptitude to stay directly involved in the technology transfer process. This position is designed for those who enjoy and thrive in the process of managing technology transfer. TIF Technology Vetting Partner: This position is available for people who have the technical or marketing skills sets to evaluate an opportunity in the TIF pipeline of technologies using our commercialization investigation tool and scoring opportunities for inclusion into the TIF Portfolio or a TIF Branch.
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Proposal TIF and (Sponsor Name) wish to summarize the terms of a proposed business relationship that brands (TIF Branch Name) within the TIF umbrella allowing both organizations to further their mission. The parties named below desire to become members in TIF Branch, LLC subject to executing definitive agreements for such. The below reflects the contributions and percentage (%) ownership arrangement post money capitalization of the various parties to the business relationship described in this Term Sheet: Interested Parties Sponsor
Seed Investors
Contribution
Membership
Include interviewing and selecting 3-5 Advisory Board Members; soliciting $1MM in seed money; approving technologies for placement into the Branch; and assisting in governance of that Branch as a TIF Advisory Council Member.
10%
Passive investors seeking a good return on investment
25%
Principals
Principal works directly with TIF in the management of the portfolio companies within a TIF Branch.
2 @ 2.5%
TIF Branch Advisory Board Members
Advisory Board Members who assist Sponsor in initial duties and ongoing governance duties of TIF Branch.
5 @ 1% Ea
The Incubation TIF will provide services to facilitate funding, Factory, LLC (TIF) administrative services, business model development, stakeholder governance, and select consulting services on a pro-bono engagement for a 2-year period. Anthony, Allan & Back office services as outlined in the AAQ Quinn, Inc. (AAQ) Consulting and Operational Services Agreement that will be finalized and included in the Operating Agreement prior to deal consummation. iLEARN LIFE Education Fund
Places distributions into human capital programs as directed by Sponsor and/or Seed investors and governed by a TBD Board of Directors
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25%
5%
25%
The following terms outline this relationship: Member Contributions and Current Capitalization 1. The Sponsor process is as follows: a. Sponsor candidate authorizes a term sheet to sponsor their Branch, (TIF Branch Name). b. Sponsor candidate recruits five Advisory Board Members representing a Branch Management Team (“FMT”). The final Advisory Board is subject to the mutual agreement of TIF and Sponsor. c. Upon the execution of the term sheet and the recruitment of a mutually agreed Advisory Board, all interested parties (TIF, sponsor candidate, and Advisory Board recruits) will convene to share all interests and information necessary to make a final decision as to the actual formation of the TIF Branch. d. TIF organizes an LLC, completes an Operating Agreement and Advisory Board Agreements and prepares an offering. The first $25,000 in seed capital, in the form of a non-refundable fee, will be paid directly to TIF for performing the services described herein. e. Sponsor begins process of raising the $1MM seed capital in accordance with state and federal securities laws and regulations. f. FMT and TIF approve technologies to be placed in the (TIF Branch Name). g. Seed capital is drawn down at a rate of $50k per technology placed. h. TIF leverages its existing broker-dealer program to secure up to $50MM for commercialization. i.
TIF/FMT designates two Principals to execute TIF’s business model development process.
j.
TIF and AAQ manage commercialization process and back-office services
k. Sponsor joins TIF Advisory Council. 2. Compensation. (Sponsor Name) recognizes the need to ensure “proper alignment of incentives” for all parties working within the start-up environment. To that end, (Sponsor Name) compensation package is 10% equity position in the (TIF Branch Name). 3. The TIF model requires that 75% of profits be retained as operating capital until investor debt is paid in full. This is a crucial and necessary component of the 5
TIF model to “put investors first”. As a result, TIF and (TIF Branch Name) Members are only eligible to receive the remaining 25% of eligible distributions until a TIF Branch Portfolio (defined as up to 20 technologies) is made whole with investors, meaning that investor debt is paid in full. 4. Management. (TIF Branch Name) will be a manager-managed LLC with AAQ as the designated Manager. 5. Member Voting. TIF voting rights include; Education Fund, AAQ and its own prorated membership interest. 6. Tax Distributions. Notwithstanding the distribution priorities set forth above, AAQ will cause (TIF Branch Name) to make a distribution to each of the members annually, on or before April 1 of each calendar year, in an amount equal to the aggregate projected federal and state income tax liability that each of the members will incur as a result of being allocated taxable income from (TIF Branch Name) for the prior taxable year. Tax distributions shall be calculated (i) as if each member were subject to income tax at a combined federal and state tax rate of forty percent (40%) and (ii) as if allocations from (TIF Branch Name) to each of the members were, for any applicable period, the sole source of income and loss for each of the members. Tax distributions will not be made to the extent they would render (TIF Branch Name) insolvent or necessitate borrowings by (TIF Branch Name). 7. Transferability. Generally, a member may not sell, assign, or transfer all or a portion of its interest in (TIF Branch Name) without the prior written consent of TIF/AAQ, which consent may be withheld in TIF/AAQ’s sole discretion. A member may not request the return of its capital contribution (or any portion thereof). 8. Indemnification. To the fullest extent permitted by law, AAQ, TIF and their managers, employees, representatives and affiliates will not be liable to (TIF Branch Name) for any losses or damages suffered by (TIF Branch Name) due to their acts or omissions undertaken in good faith and in a manner which was believed to be in, or not opposed to, the best interests of (TIF Branch Name), unless AAQ, TIF or such other person is determined to have been guilty of fraud, gross negligence, or willful and wanton misconduct. (TIF Branch Name) and its members will indemnify TIF/AAQ and their managers, employees, representatives and affiliates from and against any losses or damages incurred by any of them in furtherance of (TIF Branch Name)’s business. 9. Taxation. (TIF Branch Name) will be structured so that it will be treated as a partnership for federal income tax purposes. Each member in (TIF Branch Name) will be entitled and required to include its allocable share of income, gains, losses and deductions of (TIF Branch Name) in computing its federal and state (if applicable) income tax liability. All income allocated to tax exempt investors will be “unrelated business taxable income”.
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10. Disclaimers. You should not construe the contents of this Term Sheet or any prior or subsequent communications from any of our representatives as investment, legal, or tax advice. You should consult your own counsel, accountant, or other professional advisors as to legal, tax, and other related matters concerning the transactions described herein. No one has been authorized to give any information or to make any representations other than those contained in this Term Sheet, and, if given or made, such information or representations must not be relied upon as having been authorized by us. This Term Sheet and the information contained herein is confidential and proprietary in nature. Distribution of this Term Sheet to any person or entity, in whole or in part, or the divulgence of any of its contents other than to your advisors is unauthorized and forbidden. This Term Sheet does not create a definitive agreement and is non-binding except for the confidentiality provisions. 11. Acknowledgement: By signing this Term Sheet, both parties agree that each understands and intends that this is a non-binding term sheet. No binding obligations will be created for any of the parties until a definitive agreement for the foregoing terms has been completed and signed by all parties. . IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto on the day and date specified below.
The Incubation Factory, LLC
(Sponsor Name)
By:
By:
Title:
Title:
Date:
Date:
Submit the executed Term Sheet to: Ms. Gretchen Prater The Incubation Factory, LLC. 1141 South 7th Street Saint Louis, MO 63104 Facsimile: 314.450.5933
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Original signatures transmitted and received via facsimile or other electronic transmission of a scanned document, (e.g., .pdf or similar format) are true and valid signatures for all purposes hereunder and shall bind the parties to the same extent as that of an original signature. This Term Sheet may be executed in multiple counterparts, each of which shall be deemed to constitute an original but all of which together shall constitute only one document.
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