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Form of Convertible Security Term Sheet

Form of Convertible Security Term Sheet

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Published by Yoichiro Taku
Form of Convertible Security Term Sheet as an alternative to convertible debt
Form of Convertible Security Term Sheet as an alternative to convertible debt

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Categories:Types, Business/Law
Published by: Yoichiro Taku on Aug 30, 2012
Copyright:Attribution Non-commercial

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10/14/2015

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This sample Summary of Terms has been prepared by Wilson Sonsini Goodrich & Rosati for informational purposes only

and does not constitute advertising, a solicitation, or legal advice. Neither the transmission of this sample Summary of Terms nor the transmission of any information contained in this website is intended to create, and receipt hereof or thereof does not constitute formation of, an attorney-client relationship. This sample Summary of Terms was drafted for companies incorporated in Delaware with principal executive offices in California for use with California purchasers that qualify under applicable state and federal securities laws. Internet subscribers and online readers should not rely upon this sample Summary of Terms or the information contained in this website for any purpose without seeking legal advice from a licensed attorney in the reader’s state. The information contained in this website is provided only as general information and may or may not reflect the most current legal developments; accordingly, information on this website is not promised or guaranteed to be correct or complete. Wilson Sonsini Goodrich & Rosati expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this website. Further, Wilson Sonsini Goodrich & Rosati does not necessarily endorse, and is not responsible for, any third-party content that may be accessed through this website.

CONVERTIBLE SECURITY FINANCING SUMMARY OF TERMS ISSUER: TYPE OF SECURITY: TARGET CLOSING DATE: MINIMUM INVESTMENT: QUALIFIED FINANCING: CONVERSION PRICE: [Name] (the “Company”). Up to $[Amount] worth of convertible securities (the “Convertible Securities”). [Date]. $[25,000] per investor. Preferred Stock financing of at least $[1,000,000]. Lower of [80]% of the price per share paid by other purchasers in the Qualified Financing or a $[4,000,000] valuation cap (obtained by dividing $[4,000,000] by the Company’s fully-diluted capitalization) (the “Valuation Cap”).

AUTOMATIC CONVERSION: In the event the Company consummates a Qualified Financing prior to a change of control, the amount invested by an Investor for the purchase of such Investor’s Convertible Securities (the “Investment Amount”) shall automatically convert into shares of the Company’s Preferred Stock sold in the Qualified Financing and Common Stock at the Conversion Price. The total number of shares of Preferred Stock and Common Stock that a holder of Convertible Securities shall be entitled upon conversion of such Convertible Securities shall be determined by dividing (i) the Investment Amount by (ii) the Conversion Price (the “Total Number of Shares”). The Total Number of Shares shall consist of (i) that number of Preferred Stock obtained by dividing (a) the Investment Amount by (b) the price per share paid by other purchasers in the Qualified Financing (the “Number of Preferred Stock”) and (ii) that number of Common
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Stock equal to the Total Number of Shares minus the Number of Preferred Stock. [OPTIONAL CONVERSION: In the event the Company does not consummate a Qualified Financing prior to [date], then at the election of the holder, the entire Investment Amount shall convert into shares of the Company’s Common Stock at the [Valuation Cap]/[valuation of $2,000,000].] If the Company consummates a change of control prior to a Qualified Financing, then the entire Investment Amount shall convert into shares of the Company’s Common Stock at the Valuation Cap. [ALTERNATIVE: If the Company consummates a change of control prior to a Qualified Financing, then, upon the election of the holder, either (i) the holder shall receive a payment equal to two times the Investment Amount, or (ii) the entire Investment Amount shall convert into shares of the Company’s Common Stock at the Valuation Cap.] AMENDMENT: The Convertible Securities may be amended with the consent of the Company and holders holding a majority of the aggregate outstanding Investment Amount of the Convertible Securities.

CHANGE OF CONTROL:

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