409A Valuation Summary Memorandum

409A VALUATION SUMMARY MEMORANDUM

Fair Market Value Determination of Common Stock

MEMORANDUM COVER PAGE

1. PURPOSE OF VALUATION

This memorandum summarizes the independent appraisal of the fair market value ("FMV") of the common stock of [COMPANY NAME] (the "Company") as of [__/__/____] (the "Valuation Date"), performed for the purpose of setting the exercise price of stock options and other equity compensation awards that are intended to comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A") and Treasury Regulation § 1.409A-1(b)(5).

1.1 Why 409A Matters

Under Section 409A, stock options and stock appreciation rights ("SARs") are treated as "nonqualified deferred compensation" unless certain conditions are satisfied, including that the exercise price is not less than the FMV of the underlying stock on the grant date.

Consequences of a discounted option:

☐ Immediate income inclusion to the option holder upon vesting (not at exercise);
☐ Additional 20% federal tax on the deferred amount;
☐ Additional premium interest tax on underpayments;
☐ Potential adverse treatment at the state level (California imposes an additional 5% under Cal. Rev. & Tax. Code § 17501).

1.2 Safe Harbor Reliance

The Company is relying on the independent appraisal safe harbor under Treas. Reg. § 1.409A-1(b)(5)(iv)(B)(2)(iii), which provides a rebuttable presumption of reasonableness if the valuation:

☐ Is performed by a qualified independent appraiser;
☐ Uses generally accepted valuation methodologies;
☐ Is performed no more than 12 months before the grant date; and
☐ Is not otherwise materially inaccurate due to events occurring after the valuation.

2. COMPANY OVERVIEW

2.1 Background

2.2 Capitalization Overview

2.3 Most Recent Financing

3. VALUATION METHODOLOGY

3.1 Approaches Considered

The appraiser considered and (as indicated) applied the following generally accepted valuation approaches:

3.2 Equity Allocation Methodology

After determining the Company's total equity value, the appraiser allocated that value among the share classes using:

☐ Option Pricing Model (OPM) — Treats each class of securities as a call option on the total equity value, with strike prices based on liquidation preferences and conversion thresholds;
☐ Probability-Weighted Expected Return Method (PWERM) — Estimates the future value of each share class across multiple scenarios (IPO, M&A, dissolution, stay-private) and discounts to present value;
☐ Hybrid Method — Uses PWERM for near-term exit scenarios and OPM for remaining stay-private scenarios;
☐ Current Value Method (CVM) — Used only for mature companies with imminent liquidity.

3.3 Key Assumptions

3.4 Peer / Comparable Companies

The appraiser identified the following guideline public companies and/or transactions:

4. CONCLUSION OF VALUE

4.1 Indicated Fair Market Value

Based on the analysis described above, the independent appraiser concluded that the FMV of one share of the Company's Common Stock on a minority, non-marketable basis as of the Valuation Date is:

$[____________] per share

4.2 Implied Total Equity Value

4.3 Validity Period

This valuation may be relied upon for Section 409A purposes for grants made up to the earlier of:

☐ Twelve (12) months from the Valuation Date ([__/__/____]); or
☐ The occurrence of a Material Event, which includes but is not limited to:

• New financing round closing at a materially different valuation;
• Significant acquisition, divestiture, or strategic partnership;
• Loss of a major customer or material contract;
• Management changes at the CEO, CFO, or founder level;
• Material intellectual property event (issuance, invalidation, infringement);
• Filing of an S-1 or other indication of imminent IPO;
• Receipt of a term sheet for a change-of-control transaction;
• Material litigation or regulatory action.

Upon any Material Event, a new 409A valuation (or a confirmatory bring-down) must be obtained before further option grants.

5. BOARD AUTHORIZATION

5.1 Board Resolution

The Board of Directors, at its meeting on [__/__/____], reviewed and accepted the independent 409A valuation report and adopted the following resolution:

RESOLVED, that the Board, having reviewed the independent appraisal report prepared by [VALUATION FIRM NAME] dated [__/__/____] as of the Valuation Date [__/__/____], hereby accepts and adopts the fair market value of $[__________] per share of the Company's Common Stock and directs that all stock options and other equity awards granted on or after the date hereof reflect an exercise price of not less than such fair market value, unless and until a superseding valuation is adopted.

5.2 Signatures of Board Members

[DIRECTOR NAME], Director

Signature: _____________________________________________
Date: [__/__/____]

[DIRECTOR NAME], Director

Signature: _____________________________________________
Date: [__/__/____]

[DIRECTOR NAME], Director

Signature: _____________________________________________
Date: [__/__/____]

6. REPRESENTATIONS OF INDEPENDENT APPRAISER

The undersigned appraiser represents:

☐ I have no financial interest in, and am otherwise independent of, the Company;
☐ I have significant expertise in the valuation of private companies in the Company's industry, with at least five (5) years of relevant experience;
☐ The valuation was performed in accordance with generally accepted valuation methodologies (including AICPA Practice Aid Valuation of Privately-Held Company Equity Securities Issued as Compensation);
☐ The valuation was performed within twelve (12) months prior to the date it is being relied upon for grants of stock-based compensation;
☐ I will provide a written valuation report documenting the methodology, data, assumptions, and conclusions.

[APPRAISER NAME], [CREDENTIALS]
[VALUATION FIRM NAME]

Signature: _____________________________________________
Date: [__/__/____]

7. FILE AND RECORDKEEPING

The Company shall retain the following in its 409A file:

☐ Full written valuation report from the independent appraiser;
☐ This Summary Memorandum;
☐ Board resolution accepting the valuation;
☐ Supporting data (financial statements, cap table, peer analysis);
☐ Copy of appraiser engagement letter and representations of independence;
☐ Record of each equity grant tied to this valuation (grantee, grant date, number, exercise price).

The Company shall retain these records for not less than seven (7) years following expiration of the valuation, consistent with IRC § 6501 and related recordkeeping requirements.

DRAFTING NOTES

SOURCES AND REFERENCES

• IRC § 409A: https://www.law.cornell.edu/uscode/text/26/409A
• Treas. Reg. § 1.409A-1(b)(5) (Stock rights exception): https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1
• IRS Notice 2005-1 (Initial 409A guidance): https://www.irs.gov/irb/2005-02_IRB
• AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation: https://www.aicpa.org
• Rule 701 (17 C.F.R. § 230.701): https://www.ecfr.gov/current/title-17/part-230/section-230.701
• Cal. Rev. & Tax. Code § 17501 (California 409A conformity with 5% additional tax): https://leginfo.legislature.ca.gov

Disclaimer: This template is a summary memorandum intended to accompany an independent 409A valuation report. It is not itself a 409A valuation. Only a qualified independent appraiser can produce a valuation entitled to the rebuttable presumption of reasonableness under Section 409A. Consult qualified tax, valuation, and legal professionals before relying on any valuation for option grant purposes.