TERM SHEET FOR EQUITY FINANCING

Table of Contents

1. Overview and Parties
2. Offering Terms
3. Capitalization and Valuation
4. Dividends
5. Liquidation Preference
6. Conversion
7. Anti-Dilution Protection
8. Voting Rights
9. Protective Provisions
10. Board of Directors
11. Information Rights
12. Registration Rights
13. Right of First Refusal and Co-Sale
14. Drag-Along Rights
15. Employee Equity Pool
16. Vesting of Founder Shares
17. Exclusivity and Confidentiality
18. Conditions to Closing
19. Binding and Non-Binding Provisions
20. Signatures

THIS TERM SHEET is dated as of [__/__/____] and summarizes the principal terms of a proposed equity financing of [________________________________] (the "Company") by the investors listed herein.

EXCEPT FOR THE BINDING PROVISIONS SET FORTH IN SECTION 17 AND SECTION 19, THIS TERM SHEET IS NON-BINDING AND IS SUBJECT TO THE EXECUTION OF DEFINITIVE AGREEMENTS.

1. Overview and Parties

2. Offering Terms

3. Capitalization and Valuation

4. Dividends

☐ Non-Cumulative Dividends. Holders of Preferred Stock shall be entitled to receive non-cumulative dividends at a rate of [____]% per annum on the Original Issue Price, when and if declared by the Board of Directors.

☐ Cumulative Dividends. Holders of Preferred Stock shall be entitled to receive cumulative dividends at a rate of [____]% per annum on the Original Issue Price, accruing from the date of issuance.

☐ Participation in Common Dividends. Preferred Stock shall participate pro rata with Common Stock on an as-converted basis in any dividends paid to Common Stock holders.

5. Liquidation Preference

Liquidation Preference: In the event of a Liquidation Event, holders of Preferred Stock shall be entitled to receive, prior to any distribution to holders of Common Stock:

☐ 1x Non-Participating. An amount equal to [____]x the Original Issue Price per share, plus any declared but unpaid dividends. After payment of the liquidation preference, Preferred Stock holders may convert to Common Stock to participate, but do not receive both.

☐ 1x Participating. An amount equal to [____]x the Original Issue Price per share, plus declared but unpaid dividends, then participate pro rata with Common Stock on an as-converted basis.

☐ Participating with Cap. Same as participating, but total return is capped at [____]x the Original Issue Price.

6. Conversion

Optional Conversion: Each share of Preferred Stock is convertible at any time at the option of the holder into shares of Common Stock at the then-applicable conversion rate (initially 1:1).

Mandatory Conversion: All shares of Preferred Stock shall automatically convert into Common Stock upon (a) the closing of a firm commitment underwritten IPO with aggregate gross proceeds of at least $[________________________________] and a per-share price of at least [____]x the Original Issue Price, or (b) the written consent of the holders of [____]% of the outstanding Preferred Stock.

7. Anti-Dilution Protection

☐ Broad-Based Weighted Average. The conversion price shall be adjusted using a broad-based weighted average formula in the event the Company issues additional shares at a price below the then-applicable conversion price.

☐ Narrow-Based Weighted Average. Adjusted using narrow-based weighted average formula.

☐ Full Ratchet. The conversion price shall be reduced to the price at which new shares are issued in a down round.

8. Voting Rights

Holders of Preferred Stock shall vote together with holders of Common Stock on an as-converted basis on all matters submitted to a vote of stockholders, except as required by law or as set forth in the Protective Provisions below. Each share of Preferred Stock shall have voting rights equal to the number of shares of Common Stock issuable upon conversion.

9. Protective Provisions

So long as [____]% of the originally issued Preferred Stock remains outstanding, the Company shall not, without the prior written consent of the holders of such Preferred Stock:

☐ Amend the Certificate of Incorporation or Bylaws in a manner adverse to the Preferred Stock
☐ Authorize or issue any new class or series of stock senior to or pari passu with the Preferred Stock
☐ Increase or decrease the authorized number of shares of Preferred Stock
☐ Redeem or repurchase any shares of Common Stock (other than pursuant to equity incentive agreements)
☐ Declare or pay any dividend on any class of stock
☐ Sell, transfer, or exclusively license all or substantially all of the Company's assets
☐ Effect a merger, consolidation, or other Liquidation Event
☐ Increase or decrease the authorized size of the Board of Directors
☐ Incur indebtedness in excess of $[________________________________]
☐ Create any subsidiary or acquire any entity

10. Board of Directors

The Board of Directors shall consist of [____] members, composed as follows:

☐ [____] member(s) designated by the holders of the Preferred Stock
☐ [____] member(s) designated by the holders of the Common Stock
☐ [____] independent member(s) mutually agreed upon by the Preferred and Common holders

Board Observer: The Lead Investor shall have the right to designate one (1) non-voting observer to attend all meetings of the Board of Directors.

11. Information Rights

The Company shall deliver to each Major Investor (holding at least $[________________________________] in Preferred Stock):

☐ Annual audited financial statements within [____] days of fiscal year end
☐ Quarterly unaudited financial statements within [____] days of quarter end
☐ Monthly management reports including key operating metrics
☐ Annual budget and business plan within [____] days prior to fiscal year
☐ Capitalization table upon request (no more than quarterly)

12. Registration Rights

Demand Registration: Holders of at least [____]% of Registrable Securities may demand [____] registrations on Form S-1 beginning [____] years after the IPO.

S-3 Registration: Holders of Registrable Securities may request an unlimited number of registrations on Form S-3 (when the Company becomes eligible).

Piggyback Registration: Holders of Registrable Securities shall be entitled to piggyback registration rights, subject to customary underwriter cutbacks.

Lock-Up: Investors agree to a market standoff period of up to 180 days following the Company's IPO.

13. Right of First Refusal and Co-Sale

ROFR: The Company (and/or its assignees) shall have a right of first refusal with respect to any proposed transfer of shares by the Founders, followed by a secondary right in favor of the Investors, on a pro rata basis.

Co-Sale Right: The Investors shall have the right to participate on a pro rata basis in any transfer of shares by the Founders, on the same terms and conditions.

14. Drag-Along Rights

If the holders of [____]% of the Common Stock and [____]% of the Preferred Stock approve a sale of the Company, all other stockholders shall be required to participate in such transaction on the same terms and conditions.

15. Employee Equity Pool

The Company shall reserve [____]% of the post-money fully diluted shares for issuance to employees, consultants, and advisors pursuant to an equity incentive plan approved by the Board.

16. Vesting of Founder Shares

☐ All Founder shares shall be subject to four (4) year vesting with a one (1) year cliff. [____]% of unvested shares shall vest upon a Change of Control (single trigger) / termination without cause within [____] months of a Change of Control (double trigger).

☐ Founders who have been with the Company since incorporation shall receive credit for [____] months of vesting prior to closing.

17. Exclusivity and Confidentiality

(BINDING PROVISIONS)

Exclusivity: For a period of [____] days from the date hereof, the Company shall not solicit, negotiate, or enter into any agreement with any other party regarding an equity financing, debt financing, merger, acquisition, or similar transaction.

Confidentiality: The terms of this Term Sheet are confidential and may not be disclosed to any third party without the prior written consent of both parties, except to their respective legal, financial, and tax advisors.

18. Conditions to Closing

The closing of the financing shall be subject to:

☐ Satisfactory completion of legal, financial, and business due diligence
☐ Negotiation and execution of definitive agreements (Stock Purchase Agreement, Investor Rights Agreement, Voting Agreement, ROFR and Co-Sale Agreement, Certificate of Incorporation)
☐ Approval by the Company's Board of Directors
☐ Filing of an Amended and Restated Certificate of Incorporation with the Delaware Secretary of State
☐ Legal opinion of the Company's counsel
☐ Compliance with applicable federal and state securities laws

19. Binding and Non-Binding Provisions

Non-Binding: Except for Section 17 (Exclusivity and Confidentiality) and this Section 19, this Term Sheet is non-binding and does not create any legal obligation on the part of any party to consummate the proposed transaction.

Binding: Section 17, this Section 19, and the obligation of the parties to bear their own legal costs, are binding on the parties.

Governing Law: This Term Sheet shall be governed by and construed in accordance with the laws of the State of [________________________________], without regard to conflicts of law principles.

Expiration: This Term Sheet shall expire if not accepted by [__/__/____].

20. Signatures

COMPANY:

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

LEAD INVESTOR:

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

Sources and References

• Securities Act of 1933, § 4(a)(2) — Private Placement Exemption
• SEC Regulation D, Rules 506(b), 506(c) — Limited Offering Exemptions
• Delaware General Corporation Law, Title 8, §§ 102, 141, 151, 202, 242
• NVCA Model Legal Documents — https://nvca.org/model-legal-documents/
• IRC § 409A — Nonqualified Deferred Compensation
• IRC § 83(b) — Property Transferred in Connection with Performance of Services