Metropolitan Bank Holding Corp Form S-1

Series C Convertible Preferred Stock Term Sheet

______________________, 2003

The intent of this term sheet (the "Term Sheet") is to describe, for negotiation purposes only, some key terms of a possible investment in certain equity securities of (the "Company"). This document is not, and shall not be construed to be, a binding agreement between any person or entity and the Company with respect to the subject matter hereof, except for the following paragraph regarding confidentiality. A binding agreement will not occur unless and until all necessary corporate approvals have been obtained and the parties have negotiated, approved, executed and delivered the appropriate definitive agreements. Until execution and delivery of such definitive agreements, the Company and any potential investor, including any person who is provided a copy of this Term Sheet, shall have the absolute right to terminate all negotiations for any reason or no reason without liability therefor.

Confidentiality

The terms and conditions described in this Term Sheet, including its existence, shall be confidential information and shall not be disclosed by any person or entity who receives a copy of this Term Sheet to any other person or entity. By accepting a copy of this Term Sheet, you agree to comply with the provisions of this paragraph. If any person or entity determines that it is required by law to disclose the existence of this Term Sheet or any information contained herein, or to provide a copy of this Term Sheet to any governmental entity or regulatory authority, it shall, a reasonable time before taking any such action, consult with the Company regarding such action and seek confidential treatment for such portions as may be requested by the Company.

Terms

Issuer: , a Corp.

Investor:

Total Amount of Financing: Up to

Type of Security: Up to shares of Series Preferred Stock ("Series Preferred"), initially convertible into an equal number of shares of the Company's common stock (the "Common Stock")

Closing: On or before

Pre-Money Valuation:

Purchaser Price Per Share: of Series Preferred.

The Purchase Price has been calculated by dividing (1) the pre-money valuation by (2) the fully diluted amount of Common Stock and "common stock equivalents" expected to be outstanding immediately before closing, including:

(a) All issued and outstanding shares of Common Stock;

(b) All issued and outstanding shares of Preferred Stock (excluding the Series Preferred);

(c) Shares issuable upon exercise of all outstanding options and warrants to purchase any such Common or Preferred Stock;

(d) Shares issuable upon exercise of all options reserved for future awards under the Company's stock incentive plan; and

(e) Any other outstanding commitments, contingent or otherwise, to issue shares, options or warrants, including any and all senior securities or obligations convertible into Common Stock or Preferred Stock and any warrants granted to vendors or strategic partners.

Rights and Preferences of Series Preferred:

Dividend Rights: The Series Preferred would be entitled to an annual per share dividend equal to of the Purchase Price, payable when and if declared by the Board of Directors (the "Board"). The dividends would be cumulative and would be paid prior to payment of any dividend with respect to the Common Stock and any existing or future other series of Preferred Stock. After payment of the preferential dividend to the holders of the Series Preferred, any further dividends would be paid pari passu to the holders of the Series Preferred, the other series of Preferred Stock and the Common Stock on a pro rata, as-converted basis. The Series Preferred also would be entitled to receive pari passu with the holders described immediately above any noncash dividends declared by the Board on a pro rata, as-converted basis.

Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series Preferred would be entitled to receive, prior to any distribution to the holders of the Common Stock or any other series of Preferred Stock, an amount equal to the Purchase Price, plus all declared but unpaid accrued but unpaid, whether or not declared dividends thereon (the "Preference Amount"). After the full liquidation preference on all outstanding shares of Series Preferred and the other series of preferred stock has been paid, any remaining funds and assets of the Company legally available for distribution to stockholders would be distributed pari passu among the holders of the Series Preferred, other series of preferred stock and the Common Stock on a pro rata, as-converted basis; provided, however, that the maximum amount to be paid per share of Series Preferred would in no event exceed . If the Company had insufficient assets to permit payment of the Preference Amount in full to all Series Preferred holders, then the assets of the Company would be distributed ratably to the holders of the Series Preferred in proportion to the Preference Amount each such holder would otherwise be entitled to receive.

A merger, acquisition, change of control, consolidation or other transaction or series of transactions in which the Company's stockholders prior to such transaction or transactions would not retain a majority of the voting power of the surviving entity, or a sale of all or substantially all the Company's assets, would be deemed to be a liquidation, dissolution or winding up of the Company for purposes of the liquidation preference.

Redemption: Subject to any legal restrictions on the Company's redemption of shares, at any time after , the holders of a majority of the then outstanding Series Preferred may require the Company to redeem the outstanding Series Preferred. The redemption price for each share of Series Preferred would be of the Purchase Price, plus all declared but unpaid dividends thereon to the date of redemption (the "Redemption Price"). The Redemption Price would be proportionally adjusted for stock splits, stock dividends, etc. If, on the redemption date, the number of shares of Series Preferred that may then be legally redeemed by the Company is less than the number of such shares to be redeemed, then the shares to be redeemed but that may not be legally redeemed would be redeemed as soon as the Company had legally available funds therefore.

Conversion Rights: The holders of the Series Preferred would have the right to convert the Series Preferred into shares of Common Stock at any time. The initial conversion rate for the Series Preferred would be one-for-one.

Automatic Conversion: The Series Preferred would automatically convert into Common Stock, at the then-applicable conversion rate, upon the closing of a firmly underwritten public offering of shares of Common Stock of the Company pursuant to a registration statement on Form S-1 under the Securities Act of 1933, for listing on a nationally recognized exchange, at an effective public offering price of at least per share and gross proceeds to the Company in excess of (a "Qualified IPO").

The Series Preferred would also automatically convert into Common Stock, at the then-applicable conversion rate, upon approval of the holders of of the outstanding shares of Series Preferred.

Antidilution Provisions: The conversion price of the Series Preferred would be subject to adjustment on a basis for issuances at a purchase price less than the then-effective conversion price with a carve-out for issuances of:

(1) shares upon conversion, exchange and/or exercise of securities outstanding on the date of the closing or issued after such date but permitted by Clauses (2) through (5);

(2) stock option or other incentive awards to employees, consultants and directors involving up to shares of Common Stock;

(3) shares of Common Stock, or warrants or other securities exercisable or exchangeable for, or convertible into, such shares, to equipment or other lessors, financial institutions or other lenders in connection with commercial credit arrangements, real estate leases, equipment leases or other similar financings;

(4) equity securities pursuant to the acquisition by the Company of another business entity, products or technologies; and

(5) shares of Common Stock, or warrants or other securities exercisable or exchangeable for, or convertible into, such shares, to suppliers, customers or other strategic partners, provided, however, that each such event described in clauses (2) through (5) is approved by a majority of the Board.

Voting Rights: Each share of Series Preferred would carry a number of votes equal to the number of shares of Common Stock then issuable upon its conversion into Common Stock. The Series Preferred would generally vote together with the Common Stock on all matters submitted to a vote of stockholders and not as a separate class, except as provided below.

Protective Provisions: Consent of the holders of at least of the outstanding Series Preferred, voting separately as a class, would be required for:

(1) any amendment or change to the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series Preferred;

(2) any action that authorizes, creates or issues shares of any class of stock having preferences superior to or on a parity with the Series Preferred;

(3) any action that reclassifies any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of the Series Preferred;

(4) any amendment of the Company's Certificate of Incorporation that adversely affects the rights of the Series Preferred;

(5) any merger, consolidation, acquisition or similar transaction or series of transactions, of the Company with one or more other corporations in which the stockholders of the Company prior to such transaction or series of transactions, would hold stock representing less than a majority of the voting power of the outstanding stock of the surviving corporation immediately after such transaction or series of transactions;

(6) the sale of all or substantially all the Company's assets;

(7) the liquidation or dissolution of the Company;

(8) the declaration or payment of a dividend on the Common Stock (other than a dividend payable solely in shares of Common Stock) or the redemption or repurchase of any securities, other than repurchases following termination of employment at the original purchase price therefor;

(9) any increase in the authorized number of or the issuance of any additional shares of Common Stock or Preferred Stock; or

(10) any increase or decrease in the authorized number of directors of the Company.

Terms of the Stock Purchase Agreement and Rights Agreement: The purchase of shares of Series Preferred would be made pursuant to a Stock Purchase Agreement and a Registration Rights Agreement reasonably acceptable to the Company and investors, which agreement would contain, among other things, customary representations and warranties of the Company, covenants of the Company reflecting the provisions set forth herein, and appropriate conditions of closing, including, an opinion of counsel for the Company.

Board of Directors: The Company's Certificate of Incorporation and bylaws would provide for a Board of Directors consisting of members. The number of directors could not be changed except by an amendment to such charter documents approved by a vote of the Series Preferred in accordance with the Protective Provisions described above. In addition, the investor would have the right to appoint a representative to attend all meetings of the Board and committees thereof as an observer.

On and after the Closing Date, the Board of Directors would consist of , and .

Use of Proceeds: The Company intends to use the proceeds from the Series Preferred Financing for working capital and general corporate purposes.

Rights of First Offer: Each holder of Series Preferred would have a right of first offer to purchase up to its pro rata share (based on such holder's percentage of the Company's outstanding common shares, calculated on a fully diluted, as-converted basis) of any equity securities offered by the Company, other than:

(1) securities issued in a transaction registered under the Securities Act of 1933; and

(2) securities issued in any of the circumstances described in Clauses (1) through (5) under "Antidilution Provisions" above.

The holder would be entitled to purchase such securities at the same price and terms and on the same conditions as the Company offers such securities to other potential investors (with a right of oversubscription if any holder of Series Preferred elected not to purchase its pro rata share). This right would not apply to and would terminate upon the closing of a Qualified IPO.

Right of First Refusal and Co-Sale Agreement: The Company, each holder of Series Preferred, the founders of the Company (the "Founders") and other key stockholders would enter into a Co-Sale Agreement that would give the holders of the Series Preferred first refusal rights and co-sale rights providing that any Founder who proposes to sell all or a portion of such person's shares to a third party must permit the holders of the Series Preferred hereunder at their option (1) to purchase such stock on the same terms as the proposed transferee, or (2) sell a proportionate part of their shares on the same terms offered by the proposed transferee. This right would terminate upon the closing of a Qualified IPO.

Information Rights: So long as shares of Series Preferred are outstanding, the Company would deliver to each holder:

(1) audited annual financial statements within ninety (90) days after the end of each fiscal year;

(2) unaudited quarterly financial statements within forty-five (45) days of the end of each fiscal quarter; and

(3) an annual operating budget and strategic plan within thirty (30) days prior to the end of each fiscal year. For so long as shares of Series Preferred are outstanding, such holders would have standard inspection rights. These information and inspection rights would terminate upon the Company's Qualified Public Offering.

Registration Rights:

(1) Demand, S-3 and Piggyback Rights: The holders of Series Preferred would have registration rights customary in financings of this nature. The specific terms of such registration rights would include at least the following: beginning at any time after the earlier of the anniversary of the closing of the Series Preferred round or six months after the Company's initial public offering, demand registrations upon request of holders of at least of the registrable securities and covering the registration of capital stock having an aggregate offering price in excess of at least $ million; unlimited registrations on Form S-3 assuming that each such registered offering has an aggregate offering price of not less than $ million; unlimited piggyback registrations in connection with registrations of shares for the account of the Company or selling stockholders exercising demand rights; and cut-back provisions providing that registrations must, other than in the Qualified IPO, include at least of the shares requested to be included by the holders of registrable securities.

Officers, directors, founders, other employees of the Company and consultants would be cut back in their entirety before the holders of registrable securities would be cut back.

(2) Expenses: The Company would bear the registration expenses (excluding underwriting discounts and commissions, but including all other expenses related to the registration) of all such demand, piggyback and S-3 registrations.

(3) Transfer of Rights: The registration rights may be transferred.

(4) Termination: The registration rights would not apply to any holder who can sell all of such holder's shares in any three-month period without registration pursuant to Rule 144 promulgated under the Securities Act of 1933.

(5) Additional Registration Rights: The Company would not grant registration rights to any other holder of the Company's securities superior to or on parity with the rights granted to the holders of the Series Preferred without the prior approval of a majority of the Series Preferred.

(6) Market Stand-Off: The holders of Series Preferred would agree not to sell shares of any Common Stock or other capital stock for one hundred eighty (180) days following the Company's initial public offering, so long as all directors, officers and 1% stockholders entered into similar agreements. The holders of Series Preferred would have the right to be released pro rata from such agreement in the event the underwriters released any other stockholders from similar agreements.

Confidentiality: The terms and conditions of the financing, including its existence, would be confidential information and would not be disclosed to any third party by the Company, except as provided below. The Company would be able to disclose the existence of the financing, as well as each investor's investment in the Company, solely to the Company's investors, investment bankers, lenders, accountants, legal counsel, business partners, and bona fide prospective investors, employees, lenders and business partners in each case only where such persons or entities were under appropriate nondisclosure obligations.

Confidential Information and Invention Assignment Agreement: Each officer and key employee of the Company would have entered into an acceptable confidential information and invention assignment agreement. The Company would use its best efforts to have the remainder of the employees and officers sign such an agreement.

Legal Fees: The Company would pay at the closing the fees and expenses of one counsel for the investor (not to exceed ) arising in connection with the transactions contemplated by this Term Sheet.

Employee Vesting: Stock issued to employees directors and consultants would be subject to vesting/repurchase over four years. At least of each founder's shares would be subject to four years of vesting. Each of the founders would execute a stock restriction agreement covering the shares held by such founder providing that any unvested shares may be repurchased by the Company for the original issue price in the event the employment of such founder is terminated. Founder shares would vote as if fully vested for each founder remaining employed by the Company.

Governing Law: Delaware law.

Capitalization: After the closing of the Series Preferred round, the capitalization of the Company would be as follows:

[Insert capitalization table.]