Convertible Note Term Sheet printable pdf download

[STARTUP NAME]

CONVERTIBLE NOTE TERM SHEET

This is a summary of the principal terms of (i) a restructuring of [Startup Name] so that it is a wholly-owned

subsidiary of a Delaware limited liability company (“Company”), followed by (ii) a convertible note financing of the

Company led by Canary Fund (the “Lead Investor”). This term sheet is an expression of intent only and, except as set

forth under “Confidentiality,” is not meant to be binding on the parties.

Restructuring

Formation of Delaware LLC

The Company will be organized as a newly formed Delaware limited liability company.

Exchange of Quotas for

The founders of [Startup Name] will exchange their quotas in [Startup Name] for an

Common Units

equivalent number of Common Units issued by the Company, so they continue to own

the same percentage of the equity in the Company as they did in [Startup Name].

Similarly, all other security holders of [Startup Name] shall exchange their securities for

equivalent securities issued by the Company. This results in [Startup Name] becoming

a wholly owned subsidiary of the Company (except to the extent that applicable law

requires the founders to retain one quota).

Financing Terms

The Company will issue unsecured, convertible promissory notes (“Notes”) in exchange

Securities to Be Issued

for amounts loaned by the investors.

Financing Amount

Lead Investor:

$_________

Other investors:

up to $_________

Total:

up to $_________

Closing

The Company may close the sale of the Notes (as defined below) in multiple closings,

provided that an aggregate of at least $________ shall be raised at the initial closing.

The initial closing shall occur on or before __________, 20__, and the final closing

shall take place not later than three (3) months after the initial closing.

Maturity Date

Principal and unpaid accrued interest on the Notes will be due and payable twenty-four

(24) months after the initial closing date (the “Maturity Date”).

Interest Rate

Interest shall accrue on an annual basis at the rate of 5% per annum, payable upon the

Maturity Date.

Conversion of Notes

Each Note shall automatically be converted into units of the Company issued in the first

equity financing closing after the initial closing date resulting in aggregate gross

proceeds to the Company of at least $1.0 million, excluding conversion of any of the

Notes (the “Next Equity Financing;” such conversion, a “Financing Conversion”). If the

Next Equity Financing has not closed by the Maturity Date, at the option of the holders

of a majority in interest of the Notes, the Notes may be converted into Common Units of

the Company (a “Maturity Conversion”).

Upon a Financing Conversion, the Lead Investor will be entitled to the same rights,

preferences and privileges as the other investors purchasing equity securities in the

Next Equity Financing, including any rights granted to holders of a minimum amount of

units of in the Company (i.e., “major investors”), regardless of the number of units by

the Lead Investor.

Conversion Price

The conversion price of the Notes with respect to a Financing Conversion shall be the

lesser of (i) a 20% discount to the lowest cash price per unit paid by investors in the

Next Equity Financing or (ii) the price obtained by dividing a $_____ million valuation

(the “Valuation Cap”) by the Company’s fully diluted pre-money capitalization

immediately prior to the Next Equity Financing). The conversion price of the Notes with

Convertible Note Term Sheet

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