Investment Term Sheet

INVESTMENT TERM SHEET

[CONFIDENTIAL]

THIS TERM SHEET IS NON-BINDING, EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS 19, 20, 21, AND 22 BELOW.

Date: [__/__/____]

Company: [________________________________] (the "Company")
a [________________________________] (State) [________________________________] (Entity Type: Corporation / LLC)
Address: [________________________________]
EIN: [________________________________]

Founders: [________________________________]

Investors: [________________________________] ("Lead Investor")
[________________________________] (additional investors, if any)
(collectively, the "Investors")

Financing Round: [Series ____] [Preferred Stock / Convertible Note / SAFE / LLC Units]

TABLE OF CONTENTS

1. Offering Terms
2. Valuation and Capitalization
3. Securities to Be Issued
4. Use of Proceeds
5. Closing Conditions and Timeline
6. Liquidation Preference
7. Dividends
8. Conversion Rights
9. Anti-Dilution Protection
10. Voting Rights and Protective Provisions
11. Board of Directors
12. Information Rights
13. Registration Rights
14. Right of First Refusal and Co-Sale
15. Drag-Along Rights
16. Redemption Rights
17. Employee Equity Pool
18. Founder Matters
19. Confidentiality (Binding)
20. Exclusivity / No-Shop (Binding)
21. Legal Fees and Expenses (Binding)
22. Governing Law (Binding)
23. Non-Binding Effect
24. Additional Provisions
25. Signatures

1. OFFERING TERMS

1.1 Type of Security: [________________________________]
☐ Series [____] Preferred Stock
☐ Convertible Promissory Note
☐ Simple Agreement for Future Equity (SAFE)
☐ LLC Membership Units (Preferred)
☐ Other: [________________________________]

1.2 Amount of Financing:
(a) Total amount to be raised in this round: $[________________________________]
(b) Lead Investor commitment: $[________________________________]
(c) Minimum investment per Investor: $[________________________________]
(d) Overallotment option (if any): $[________________________________]

1.3 Exemption from Registration: This offering is being made in reliance on exemptions from registration under the Securities Act of 1933, including:

☐ Section 4(a)(2), 15 U.S.C. § 77d(a)(2) (Private Placement Exemption)
☐ Rule 506(b), 17 CFR § 230.506(b) (No General Solicitation; up to 35 non-accredited investors)
☐ Rule 506(c), 17 CFR § 230.506(c) (General Solicitation Permitted; accredited investors only with verification)
☐ Regulation A, 17 CFR §§ 230.251-230.263
☐ Regulation Crowdfunding, 17 CFR Part 227
☐ Other: [________________________________]

1.4 Accredited Investor Requirement: Under Rule 506(b) or 506(c), each Investor (other than up to 35 sophisticated non-accredited investors permitted under Rule 506(b)) must qualify as an "accredited investor" as defined in 17 CFR § 230.501(a). If the Company relies on Rule 506(c), the Company must take reasonable steps to verify each Investor's accredited investor status.

1.5 State Blue Sky Compliance: The Company shall make all required filings under applicable state securities (blue sky) laws, including the filing of Form D with the SEC within 15 days of the first sale of securities (17 CFR § 230.503) and any state notice filings required under the Uniform Securities Act or state-specific filing requirements.

2. VALUATION AND CAPITALIZATION

2.1 Pre-Money Valuation: $[________________________________]

2.2 Post-Money Valuation: $[________________________________]

2.3 Price Per Share: $[________________________________] (the "Original Purchase Price")

2.4 Fully Diluted Capitalization: The fully diluted capitalization includes all outstanding shares (common and preferred), all shares reserved under the Company's equity incentive plan(s) (whether or not granted), all shares issuable upon conversion of outstanding convertible securities, and all shares issuable upon exercise of outstanding warrants and options.

2.5 Capitalization Table. A complete capitalization table shall be attached as an exhibit to the definitive Stock Purchase Agreement.

3. SECURITIES TO BE ISSUED

3.1 Authorized Shares. The Company's Certificate of Incorporation (or equivalent organizational document) shall be amended to authorize the issuance of [________________________________] shares of Series [____] Preferred Stock with the rights, preferences, and privileges set forth herein.

3.2 Charter Amendment. The Company shall file an Amended and Restated Certificate of Incorporation reflecting the terms of this financing.

4. USE OF PROCEEDS

4.1 The Company shall use the proceeds of this financing for the following purposes:

☐ Product development and engineering: $[________________________________]
☐ Sales and marketing: $[________________________________]
☐ General working capital: $[________________________________]
☐ Hiring and personnel: $[________________________________]
☐ Debt repayment: $[________________________________]
☐ Capital expenditures: $[________________________________]
☐ Other: [________________________________]

4.2 The Company shall not use proceeds for payments to insiders, related parties, or Founders (except for reasonable compensation approved by the Board) without the consent of the Lead Investor.

5. CLOSING CONDITIONS AND TIMELINE

5.1 Target Initial Closing: [__/__/____]

5.2 Final Closing Deadline: [__/__/____] (subsequent closings permitted until this date)

5.3 Conditions to Closing. The obligations of the Investors to purchase the Securities are subject to:

(a) Satisfactory completion of legal, financial, technical, and business due diligence by the Investors;

(b) Negotiation and execution of definitive agreements, including:

• Stock Purchase Agreement (or equivalent)
• Amended and Restated Certificate of Incorporation
• Investors' Rights Agreement
• Right of First Refusal and Co-Sale Agreement
• Voting Agreement
• Management Rights Letter (if applicable)
• Compliance Certificate;

(c) Approval by the Company's Board of Directors and, if required, existing stockholders;

(d) Receipt of all necessary governmental, regulatory, and third-party approvals and consents;

(e) No material adverse change in the Company's business, financial condition, operations, or prospects since the date of this term sheet;

(f) Legal opinion of Company counsel, if requested;

(g) Satisfactory review of the Company's intellectual property, including confirmation that all IP has been properly assigned to the Company; and

(h) Compliance with applicable federal and state securities laws, including filing of Form D with the SEC and required state notice filings.

6. LIQUIDATION PREFERENCE

6.1 Preference Amount:
☐ [____]x Non-Participating Preferred (NVCA standard)
☐ [____]x Participating Preferred with [____]x cap
☐ [____]x Participating Preferred (uncapped)
☐ Other: [________________________________]

6.2 Liquidation Event. Upon a Liquidation Event (defined as a merger, acquisition, sale of all or substantially all assets, exclusive license of all or substantially all IP, or winding up of the Company), proceeds shall be distributed as follows:

(a) First: Series [____] Preferred Stock holders receive an amount equal to [____] times the Original Purchase Price per share, plus any declared but unpaid dividends (the "Liquidation Preference");

(b) Second (Non-Participating): The remaining proceeds shall be distributed to the holders of Common Stock on a pro rata basis; OR

(b) Second (Participating): After payment of the Liquidation Preference, the remaining proceeds shall be distributed pro rata among all stockholders (Common and Preferred) on an as-converted basis, subject to the participation cap of [____]x total return if applicable;

(c) Conversion Right: Holders of Series [____] Preferred Stock may elect to convert to Common Stock and participate in the distribution to Common Stock holders in lieu of receiving the Liquidation Preference, if conversion would result in a greater return.

6.3 Seniority. The Series [____] Preferred Stock liquidation preference shall rank:
☐ Senior to all other series of Preferred Stock (standard seniority)
☐ Pari passu with [________________________________]
☐ Junior to [________________________________]

7. DIVIDENDS

7.1 Dividend Rights:
☐ Non-cumulative dividends at a rate of [____]% per annum on the Original Purchase Price, payable when, as, and if declared by the Board of Directors
☐ Cumulative dividends at a rate of [____]% per annum on the Original Purchase Price, accruing from issuance and payable upon a Liquidation Event or redemption
☐ No stated dividend rate; Preferred Stock participates in dividends declared on Common Stock on an as-converted basis
☐ Other: [________________________________]

7.2 Priority. No dividends shall be declared or paid on Common Stock unless and until dividends on the Series [____] Preferred Stock have been paid or declared and set aside for payment.

8. CONVERSION RIGHTS

8.1 Optional Conversion. Each share of Series [____] Preferred Stock shall be convertible into Common Stock at the option of the holder at any time, initially on a one-for-one basis, subject to adjustment for stock splits, stock dividends, combinations, and anti-dilution adjustments.

8.2 Automatic Conversion. All shares of Series [____] Preferred Stock shall automatically convert into Common Stock upon:

(a) The closing of a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 with aggregate gross proceeds of at least $[________________________________] and a per share price of at least [____]x the Original Purchase Price (a "Qualified IPO"); or

(b) The vote or written consent of the holders of [____]% of the then-outstanding shares of Series [____] Preferred Stock.

8.3 Conversion Price. The initial conversion price shall equal the Original Purchase Price, subject to adjustment as provided in Section 9.

9. ANTI-DILUTION PROTECTION

9.1 Type of Anti-Dilution:
☐ Broad-Based Weighted Average (NVCA standard / market standard)
☐ Narrow-Based Weighted Average
☐ Full Ratchet
☐ None

9.2 Broad-Based Weighted Average Formula. If Broad-Based Weighted Average is selected, the conversion price shall be adjusted using the following formula upon the issuance of additional shares at a price below the then-applicable conversion price (a "Down Round"):

Adjusted CP = CP x (A + B) / (A + C)

Where:

• CP = Conversion Price immediately prior to the new issuance
• A = Number of shares outstanding immediately prior to the new issuance (on a fully diluted basis)
• B = Number of shares that would have been issued at the existing CP for the aggregate consideration received
• C = Number of shares actually issued in the new issuance

9.3 Excluded Issuances. The following issuances shall not trigger anti-dilution adjustments:

(a) Shares issued upon conversion of the Series [____] Preferred Stock;
(b) Shares issued as employee or director equity compensation pursuant to a Board-approved equity incentive plan;
(c) Shares issued in connection with bona fide acquisitions, mergers, or strategic partnerships approved by the Board;
(d) Shares issued upon exercise of outstanding warrants or conversion of outstanding convertible securities;
(e) Shares issued in a Qualified IPO; and
(f) Other issuances approved by the holders of [____]% of the Series [____] Preferred Stock.

9.4 Pay-to-Play. ☐ Applicable ☐ Not Applicable

If applicable: Any holder of Series [____] Preferred Stock that does not participate in a subsequent down round financing on a pro rata basis (based on fully diluted ownership) shall have its Series [____] Preferred Stock converted into Common Stock (or, alternatively, into a shadow series of Preferred Stock with reduced rights) and shall lose anti-dilution, registration, and other Investor rights.

10. VOTING RIGHTS AND PROTECTIVE PROVISIONS

10.1 General Voting Rights. Each share of Series [____] Preferred Stock shall have the right to vote on all matters submitted to a vote of stockholders, on an as-converted basis, together with the Common Stock as a single class.

10.2 Protective Provisions. Consent of the holders of [____]% of the outstanding Series [____] Preferred Stock, voting as a separate class, shall be required for:

(a) Any amendment to the Certificate of Incorporation or Bylaws that adversely affects the rights, preferences, or privileges of the Series [____] Preferred Stock;

(b) Any increase or decrease in the authorized number of shares of Preferred Stock;

(c) Authorization or issuance of any equity security senior to or on parity with the Series [____] Preferred Stock;

(d) Any Liquidation Event (merger, acquisition, sale of assets, or dissolution);

(e) Declaration or payment of dividends or distributions on any capital stock;

(f) Repurchase or redemption of any capital stock (except employee repurchases at cost upon termination);

(g) Any increase in the size of the Board of Directors;

(h) Incurrence of indebtedness in excess of $[________________________________];

(i) Related-party transactions;

(j) Changes to the Company's principal business or entry into materially different lines of business;

(k) Any change in the Company's auditors; and

(l) Any other action that would materially and adversely affect the Series [____] Preferred Stock.

11. BOARD OF DIRECTORS

11.1 Board Composition. The Board of Directors shall consist of [____] members:

☐ [____] member(s) designated by the holders of the Series [____] Preferred Stock (the "Investor Director(s)"), initially [________________________________]
☐ [____] member(s) designated by the holders of Common Stock (the "Common Director(s)"), initially [________________________________]
☐ [____] independent member(s) mutually acceptable to the Common Director(s) and Investor Director(s) (the "Independent Director(s)"), initially [________________________________]

11.2 Board Observer. The Lead Investor shall have the right to designate [____] non-voting observer(s) to attend all Board meetings, subject to customary conflict-of-interest exclusions.

11.3 Board Meeting Frequency. The Board shall meet at least [☐ quarterly ☐ monthly ☐ other: ____________].

11.4 Board Committees. The Board shall establish an audit committee and a compensation committee, each with at least one Independent Director, within [____] months of closing.

11.5 D&O Insurance. The Company shall maintain directors' and officers' liability insurance in an amount of at least $[________________________________], with coverage terms reasonably acceptable to the Investor Director(s).

11.6 Indemnification. The Company shall provide indemnification agreements to all directors and officers to the maximum extent permitted by applicable law.

12. INFORMATION RIGHTS

12.1 Financial Reporting. The Company shall deliver to each Investor holding at least [________________________________] shares of Preferred Stock (a "Major Investor"):

(a) Unaudited monthly financial statements within [____] days of month-end;

(b) Unaudited quarterly financial statements within [____] days of quarter-end;

(c) Audited annual financial statements (prepared by a nationally or regionally recognized accounting firm) within [____] days of fiscal year-end;

(d) Annual operating budget and business plan within [____] days before the start of each fiscal year; and

(e) Capitalization table updated at least quarterly.

12.2 Inspection Rights. Major Investors shall have the right to inspect the Company's books, records, and facilities upon reasonable prior notice during normal business hours.

12.3 Termination of Information Rights. Information rights shall terminate upon the earlier of: (a) a Qualified IPO; (b) a Liquidation Event; or (c) the date on which the Investor holds less than [________________________________] shares.

12.4 Confidentiality. Information provided pursuant to this Section is Confidential Information subject to Section 19.

12.5 Management Rights Letter. Upon request, the Company shall provide each Investor that requires it a management rights letter confirming contractual rights sufficient to qualify the Investor's investment as a "venture capital investment" for purposes of the DOL's plan assets regulation under ERISA.

13. REGISTRATION RIGHTS

13.1 Demand Registration. Major Investors holding at least [____]% of registrable securities may require the Company to file a registration statement under the Securities Act on [____] occasion(s) beginning the earlier of: (a) [____] years after the closing; or (b) [____] months after the Company's initial public offering. The Company shall not be obligated to effect more than [____] demand registration(s).

13.2 Piggyback Registration. If the Company proposes to register any of its securities under the Securities Act (other than a registration relating solely to employee benefit plans or SEC Rule 145 transactions), each Investor shall have the right to include its registrable securities in such registration, subject to customary underwriter cutback provisions.

13.3 S-3/Shelf Registration. Investors may require the Company to file a registration statement on Form S-3 (or any successor form) when the Company becomes eligible, subject to customary limitations on the number of requests per twelve-month period and minimum aggregate offering amount of $[________________________________].

13.4 Registration Expenses. The Company shall bear all registration expenses (excluding underwriting discounts and commissions), including SEC and state filing fees, legal fees, accounting fees, and printing costs.

13.5 Lock-Up Agreement. Investors agree, upon request of the underwriter in an IPO, to a market standby (lock-up) period of up to [____] days following the effective date of the registration statement, provided that all executive officers, directors, and holders of 1% or more of the Company's stock are subject to equivalent restrictions.

14. RIGHT OF FIRST REFUSAL AND CO-SALE

14.1 Right of First Refusal (ROFR). Investors shall have a right of first refusal to purchase their pro rata share of any proposed transfer of shares by a Founder or key employee to a third party, at the same price and on the same terms.

14.2 Co-Sale Right (Tag-Along). If a Founder or key employee proposes to transfer shares and the Investors do not exercise the ROFR in full, each Investor shall have the right to participate in such transfer on a pro rata basis, at the same price and on the same terms.

14.3 Exempt Transfers. The ROFR and Co-Sale rights shall not apply to:

(a) Transfers to immediate family members or trusts for estate planning purposes;
(b) Transfers to affiliates;
(c) Pledges to financial institutions; or
(d) Transfers approved by the Board, including Investor Director(s).

14.4 Termination. ROFR and Co-Sale rights terminate upon a Qualified IPO.

15. DRAG-ALONG RIGHTS

15.1 Drag-Along Obligation. If a Liquidation Event is approved by (a) the Board (including [at least one Investor Director / a majority of the Board]), (b) holders of [____]% of the outstanding Preferred Stock, and (c) holders of [____]% of the outstanding Common Stock, then all stockholders shall vote in favor of and consent to the transaction and shall take all reasonably necessary actions to consummate the transaction.

15.2 Stockholder Representations. In a drag-along transaction, each stockholder shall only be required to make representations and warranties about its ownership of shares, authority, and absence of conflicts. No stockholder shall be required to make representations about the Company's business.

15.3 Liability Cap. Each stockholder's liability for indemnification in connection with a drag-along transaction shall not exceed the net proceeds received by such stockholder.

15.4 Equal Treatment. All stockholders participating in a drag-along transaction shall receive the same form and amount of consideration per share (on an as-converted basis) or equivalent value, with payment of the applicable Liquidation Preference to Preferred Stock holders.

16. REDEMPTION RIGHTS

16.1 Redemption:
☐ Not applicable (NVCA default)
☐ Investor may elect to require redemption of the Series [____] Preferred Stock at any time after the [____] anniversary of the original issuance date at a price equal to the Original Purchase Price plus [declared but unpaid dividends / accrued dividends]. Redemption shall be paid in [____] equal annual installments beginning on the redemption date.

17. EMPLOYEE EQUITY POOL

17.1 Option Pool Size. [____]% of the Company's post-money fully diluted capitalization shall be reserved for the issuance of stock options, restricted stock, RSUs, or other equity-based awards to employees, directors, and consultants (the "Option Pool").

17.2 Pool Allocation. As of closing:
(a) Shares currently allocated under existing grants: [________________________________]
(b) Unallocated shares available for future grants: [________________________________]

17.3 Administration. The Option Pool shall be administered under the Company's Board-approved equity incentive plan, with terms standard for similarly situated companies, including:

(a) Four-year vesting with a one-year cliff (industry standard);
(b) Exercise price at fair market value as determined by a qualified 409A valuation;
(c) Post-termination exercise period of [____] months (90 days is standard, though some companies offer extended post-termination exercise periods); and
(d) Acceleration provisions as approved by the Board.

18. FOUNDER MATTERS

18.1 Founder Vesting. Each Founder's shares shall be subject to vesting as follows:

(a) [____]% of Founder's shares shall be deemed vested as of the closing date (credit for time and contributions to date);

(b) The remaining unvested shares shall vest monthly over [____] years from [the date of the Company's incorporation / the closing date];

(c) Cliff: [____]-month cliff (no vesting during the cliff period, with all accumulated vesting occurring at the end of the cliff);

(d) Acceleration upon change of control:
☐ Single-trigger acceleration (all shares vest upon a Liquidation Event)
☐ Double-trigger acceleration (all or partial vesting upon termination without cause or resignation for good reason within [____] months following a Liquidation Event)
☐ No acceleration

18.2 Founder Restrictions. Each Founder shall:

(a) Execute an Employee Confidential Information, Invention Assignment, and Non-Competition Agreement;

(b) Assign all relevant intellectual property to the Company;

(c) Devote full-time efforts to the Company (no outside activities without Board approval); and

(d) Be subject to non-competition and non-solicitation covenants for a period of [____] months following termination (subject to enforceability under applicable state law; note that California, Colorado, Minnesota, North Dakota, and Oklahoma impose significant restrictions on non-competes).

18.3 Key Person Provision. The departure of [________________________________] from the Company without Board-approved succession within [____] days shall constitute an event requiring Board discussion and potential acceleration of Board-approved succession planning.

19. CONFIDENTIALITY (BINDING)

19.1 This Section is binding upon execution of this term sheet. The existence and terms of this term sheet shall be treated as confidential by all parties and shall not be disclosed to any third party (other than the parties' respective attorneys, accountants, and financial advisors who are bound by confidentiality obligations), except:

(a) As required by applicable law or regulatory requirement;

(b) To existing stockholders of the Company, subject to confidentiality obligations; or

(c) With the prior written consent of all parties.

19.2 The confidentiality obligations in this Section shall survive termination or expiration of this term sheet for a period of [____] months.

20. EXCLUSIVITY / NO-SHOP (BINDING)

20.1 This Section is binding upon execution of this term sheet. For a period of [____] days following execution (the "Exclusivity Period"), the Company and each Founder shall not, directly or indirectly:

(a) Solicit, encourage, initiate, or engage in discussions or negotiations with any person or entity regarding any equity financing, merger, acquisition, sale of assets, or similar transaction (a "Competing Transaction");

(b) Provide any non-public information to any third party in connection with a Competing Transaction; or

(c) Enter into any agreement, letter of intent, or term sheet regarding a Competing Transaction.

20.2 The Company shall promptly notify the Lead Investor if it receives any unsolicited proposal or inquiry regarding a Competing Transaction.

21. LEGAL FEES AND EXPENSES (BINDING)

21.1 This Section is binding upon execution of this term sheet. Upon closing, the Company shall reimburse the Lead Investor's reasonable legal fees and out-of-pocket expenses incurred in connection with this transaction, up to a maximum of $[________________________________].

21.2 If the transaction does not close due to a breach by the Company or the Founders, the Company shall reimburse the Lead Investor's reasonable legal fees and expenses incurred up to the date of termination, subject to the cap in Section 21.1.

22. GOVERNING LAW (BINDING)

22.1 This Section is binding upon execution of this term sheet. This term sheet shall be governed by and construed in accordance with the laws of the State of [________________________________], without regard to its conflict-of-law principles.

22.2 The definitive agreements shall be governed by the laws of the State of [________________________________] (typically the Company's state of incorporation for the Certificate of Incorporation and related governance documents).

23. NON-BINDING EFFECT

23.1 Except for Sections 19 (Confidentiality), 20 (Exclusivity / No-Shop), 21 (Legal Fees and Expenses), and 22 (Governing Law), which are binding upon execution, this term sheet is an expression of intent only and does not constitute a legally binding obligation of any party. No binding agreement shall exist unless and until definitive written agreements are negotiated, executed, and delivered by all parties.

23.2 Any party may terminate discussions at any time for any reason, without liability, by providing written notice to the other parties.

23.3 This term sheet supersedes all prior discussions, negotiations, and term sheets between the parties relating to the proposed investment.

24. ADDITIONAL PROVISIONS

24.1 Preemptive Rights / Pro Rata Participation. Major Investors shall have the right to purchase their pro rata share (based on fully diluted ownership) of any new securities offered by the Company (with customary exclusions for employee equity issuances, strategic acquisitions, and equipment financings).

24.2 Key Person Insurance. The Company shall obtain and maintain key person life insurance on [________________________________] in the amount of $[________________________________], with the Company as beneficiary.

24.3 Founder Non-Compete / Non-Solicitation. See Section 18.2(d). Enforceability varies by state; counsel should confirm applicable state restrictions.

24.4 IP Assignment. All employees and consultants shall execute proprietary information and inventions assignment agreements in a form reasonably satisfactory to the Investors.

24.5 Voting Agreement. The parties shall enter into a Voting Agreement providing for the election of the Board of Directors as set forth in Section 11.

24.6 Investor Rights Agreement. The Company and Investors shall enter into an Investors' Rights Agreement providing for the information rights, registration rights, preemptive rights, and other rights described herein.

24.7 Right of First Refusal and Co-Sale Agreement. The Company, Investors, and Founders shall enter into a ROFR and Co-Sale Agreement as described in Section 14.

24.8 Compliance with Securities Laws. The Company shall comply with all applicable federal and state securities laws in connection with this offering, including:

(a) Filing Form D with the SEC within 15 days of the first sale (17 CFR § 230.503);
(b) Making required state notice filings under applicable blue sky laws;
(c) Providing appropriate legends on stock certificates or book-entry notations;
(d) Verifying accredited investor status if relying on Rule 506(c); and
(e) Maintaining records of all offering materials and investor qualifications.

25. SIGNATURES

IN WITNESS WHEREOF, the parties have executed this term sheet as of the date first written above. By signing below, each party agrees to the binding provisions in Sections 19, 20, 21, and 22, and acknowledges the non-binding nature of all other provisions.

COMPANY:

Signature: [________________________________]
Printed Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

LEAD INVESTOR:

Signature: [________________________________]
Printed Name: [________________________________]
Title/Capacity: [________________________________]
Entity Name (if applicable): [________________________________]
Date: [__/__/____]

FOUNDER(S):

Founder 1:
Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

Founder 2:
Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

EXHIBIT A - CAPITALIZATION TABLE

(Attach detailed capitalization table showing fully diluted ownership pre- and post-financing)

EXHIBIT B - USE OF PROCEEDS SUMMARY

PRACTICE TIPS FOR ATTORNEYS

1. 506(b) vs. 506(c): Rule 506(b) prohibits general solicitation but permits up to 35 sophisticated non-accredited investors. Rule 506(c), added by the JOBS Act, permits general solicitation but requires verification of accredited investor status (not just self-certification). The verification requirement under 506(c) is a meaningful compliance burden; acceptable methods include reviewing tax returns, bank/brokerage statements, W-2s, or obtaining written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or CPA.

2. NVCA 2025 Updates: The October 2025 NVCA model document revisions address evolving market norms, the impact of the Outbound Investment Security Program, bulk data transfer rules, and post-Moelis governance considerations. Review updated forms at https://nvca.org/model-legal-documents/.

3. Anti-Dilution Standard: Broad-based weighted average is the market standard and the NVCA default. Full ratchet is aggressive and rarely used except in very early-stage or distressed situations. Narrow-based weighted average uses a smaller denominator and is more investor-favorable than broad-based.

4. Liquidation Preference: 1x non-participating is the NVCA default and founder-friendly. Participating preferred with no cap is the most investor-favorable. Participating preferred with a cap provides a middle ground. The practical impact of participating vs. non-participating is most significant in exits between 1x and 3x of the investment.

5. Pay-to-Play: This provision incentivizes Investors to participate in future rounds. The NVCA model allows for conversion to Common Stock or a shadow series. Consider whether pay-to-play is appropriate for the stage and investor composition.

6. State Blue Sky Laws: While Rule 506 offerings are covered securities that preempt state registration requirements under NSMIA (15 U.S.C. § 77r), states may still require notice filings and fees. Track filing deadlines carefully.

7. 409A Valuation: The exercise price for employee stock options must be set at fair market value under IRC § 409A. A qualified independent appraisal (the "safe harbor" under Treasury Regulation § 1.409A-1(b)(5)(iv)(B)) provides a rebuttable presumption of reasonableness.

8. Non-Compete Enforceability: Non-compete provisions for founders vary dramatically by state. California (Bus. & Prof. Code § 16600), Colorado, Minnesota, North Dakota, and Oklahoma significantly restrict or ban employee non-competes. Tailor founder restrictions to the applicable state and consider non-solicitation provisions as an alternative.

9. Form D Filing: Form D must be filed with the SEC within 15 days of the first sale (17 CFR § 230.503). While failure to file does not automatically disqualify the Rule 506 exemption, it may trigger SEC scrutiny and some states condition their notice filing exemptions on timely SEC filing.

10. Drag-Along Considerations: Post-Moelis (Delaware Chancery Court), ensure that drag-along provisions in governance documents are carefully drafted. The 2025 NVCA revisions address shareholder agreement provisions in light of the Moelis decision regarding board constraints.

SOURCES AND REFERENCES

• Securities Act of 1933, 15 U.S.C. §§ 77a-77aa: https://www.law.cornell.edu/uscode/text/15/chapter/2A
• Regulation D, 17 CFR §§ 230.501-230.508: https://www.ecfr.gov/current/title-17/chapter-II/part-230/subject-group-ECFR6e12e36e3700b5c
• NVCA Model Legal Documents (October 2025): https://nvca.org/model-legal-documents/
• NVCA 2025 Updates Analysis (Foley & Lardner): https://www.foley.com/insights/publications/2025/10/breaking-down-the-nvca-what-founders-and-vcs-need-to-know/
• SEC Regulation D Overview: https://www.sec.gov/education/smallbusiness/exemptofferings/regD
• 506(b) vs. 506(c) Guide (Carta): https://carta.com/learn/private-funds/regulations/regulation-d/506b-vs-506c/
• Form D: https://www.sec.gov/about/forms/formd.pdf
• SEC Accredited Investor Definition: https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor
• JOBS Act, Pub. L. 112-106: https://www.congress.gov/bill/112th-congress/house-bill/3606