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This Debt Financing Term Sheet sets forth terms and conditions for the issuance of secured convertible promissory notes to raise capital for a startup company. The promissory notes will convert to equity in the company after closing. A term sheet is a non-binding agreement that lays the groundwork for ensuring that the parties involved in a business transaction are in agreement on most aspects of the deal. Once the parties agree to the term sheet, a binding agreement that conforms to the term sheet is drawn up. This document contains numerous standard provisions commonly included in a debt financing term sheet. It should be used in the financing process of a startup company.
This Debt Financing Term Sheet sets forth terms and conditions for the issuance of secured convertible promissory notes to raise capital for a startup company. The promissory notes will convert to equity in the company after closing. A term sheet is a non-binding agreement that lays the groundwork for ensuring that the parties involved in a business transaction are in agreement on most aspects of the deal. Once the parties agree to the term sheet, a binding agreement that conforms to the term sheet is drawn up. This document contains numerous standard provisions commonly included in a debt financing term sheet. It should be used in the financing process of a startup company. DEBT FINANCING TERM SHEET FOR THE PURCHASE AND SALE OF SECURED CONVERTIBLE PROMISSORY NOTES OF ____________________, INC. [Instruction: Enter company name here.] _________________, 20__ This Debt Financing Term Sheet (this “Debt Financing Term Sheet”) sets forth the principal terms offered to __________________ [Instruction: Enter name of investor here.] (the “Investor”) for the purchase of convertible promissory notes of __________________ [Instruction: Enter company name here.], a _______ [Instruction: Enter state of incorporation here.]corporation (the “Company”). SECTION I. GENERAL 1. Type of Security: Convertible notes, bearing interest at a simple interest rate of _________ (___%) percent calculated on the basis of a 360-day year consisting of twelve, 30-day months (the “Notes”). 2. Amount Invested: A minimum of __________ ($____) dollars and a maximum of _________ ($______) dollars. 3. Investors: Investor, as well as other investors designated by Company (collectively, the “Note Investors”). 4. Closing: As soon as practicable following the Company’s acceptance of this Debt Financing Term Sheet and satisfaction of the conditions described below under the caption “Conditions to Closing” (the “Initial Closing”). Up to ______ ( ) [Instruction: Enter number here.] additional closings may occur at any time during the _____ ( ) [Instruction: Enter number of days here.] day period following the Initial Closing. SECTION II. TERMS OF THE NOTES 1. Term of Payment: If not converted as provided in paragraph 2 of this section prior to the twelve-month anniversary of the Initial Closing, the Notes would be payable upon demand. Prepayment is not permitted prior to a payoff event (the due date, the closing of a change of control transaction or the closing of the Company’s IPO). 2. Terms of Conversion: Copyright © 2013 Docstoc Inc. 2 The Notes would be convertible on the following terms: A. At any time after the Closing, at the Investor’s option, into a number of shares of the Company’s Common Stock (the “Common Shares”), equal to __________ (____ %) percent of the Company’s capital stock calculated on a fully diluted basis; or; B. In the event that the conversion contemplated by the foregoing clause shall not have already occurred, then into the Company’s next issued series of preferred shares (the “Preferred Shares”) resulting in new money of not less than _________ ($____) dollars (the “Preferred Financing”) at the per share price of such Preferred Shares (interest would either be paid or converted at the option of the Company). 3. Change of Control or IPO: If a change of control transaction or the Company’s IPO occurs prior to the Series A Preferred Financing, the Notes would, at the election of the holders of a majority of the outstanding principal of the Notes, be either (i) payable upon demand as of the closing of such transaction or (ii) convertible into shares of the Company’s Common Stock (the “Common Shares”) immediately prior to such transaction at a price per share equal to the lesser of (the “Common Price”) (y) the per share value of the Common Shares as then reasonably determined by the Company’s Board of Directors acting in good faith, from time to time, in connection with either the grant of an incentive stock option qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or the sale of common stock in a private sale to a third party in an “arms- length” transaction, or (z) the per share consideration to be received by the holders of the Common Shares in such transaction. 4. Warrant Coverage: Upon issuance of the Notes in each Closing, purchasers would receive __-year warrants (the “Warrants”) to purchase that number of shares of Warrant Stock determined by dividing ________ (__ %) percent of the original principal amount of such purchaser’s note by the Warrant Exercise Price. “Warrant Stock” means the Series A Preferred Shares, unless the warrant is exercised prior to the Series A Preferred Financing, in which case Warrant Stock means the Common Shares. “Warrant Exercise Price” means the Series A Preferred Price, unless the Warrant Stock is Common Shares, in which case the Warrant Exercise Price is the Common Price. 5. Security: Repayment of the Notes would be secured by a first priority security interest in collateral consisting of all of the assets of the Company. SECTION III. GOVERNANCE 1. Protective Provisions: Copyright © 2013 Docstoc Inc. 3 The Company would not, without the written consent of the holders of at least a majority of the principal amount of the Notes, either directly or by amendm
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