___________, [year]
The following is a summary of the principal terms with respect to the proposed convertible promissory note financing of ___________, Inc., a Delaware corporation (the “Company”). Except for the section entitled “Binding Terms,” this summary of terms does not constitute a legally binding obligation. The parties intend to enter into a legally binding obligation only pursuant to definitive agreements to be negotiated and executed by the parties.
Securities to be Issued: Convertible Promissory Notes (the “Notes”).
Aggregate Proceeds: Up to $____________ in the aggregate.
Investors: Bloomberg Beta to invest $__________, and accredited investors approved by the Company to invest in the remainder (collectively, the “Investors.”)
Interest: Simple interest will accrue at the rate of 7% per annum based on a 365-day year.
Term of Notes: 24 months from the date of the note purchase agreement (the “Maturity Date”).
Conversion Upon Qualified Financing: Upon a Qualified Financing (as defined below), the principal amount of the Notes, together with all accrued and unpaid interest, will automatically be converted into that number of shares of the class and/or series of the Company's equity securities that are sold in the Qualified Financing (the "New Securities") determined by dividing (i) the total amount of principal and accrued interest on the Notes at the time of such closing, by (ii) the lesser of (A) 80% of the per share purchase price of the New Securities sold in the Qualified Financing, or (B) the price obtained by dividing $__________ (the “Valuation Cap”) by the Company’s fully-diluted capitalization immediately prior to the Qualified Financing (including any shares reserved for issuance under any equity plan and any increase to the number of shares reserved for issuance made in connection with such financing).
A "Qualified Financing" shall mean a preferred stock financing led by one or more institutional investors (which may include one or more of the Investors) in which the Company receives aggregate gross proceeds of at least $3,000,000, excluding conversion of the Notes.
Optional Conversion upon Non-Qualified Financing: Upon an equity financing that does not qualify as a Qualified Financing (a "Non-Qualified Financing"), each Investor will have the option, exercisable in its sole discretion, to convert the principal amount of its Note, together with all accrued and unpaid interest, into the equity securities issuable in the Non-Qualified Financing upon the same terms and conditions that would be applicable if the Non-Qualified Financing were to qualify as a Qualified Financing. In the event of such conversion, all references herein to the "Qualified Financing" will be references to such Non-Qualified Financing.
Optional Conversion upon Maturity: If neither a Qualified Financing nor a Non-Qualified Financing has occurred prior to the Maturity Date, each Investor will have the option, exercisable in its sole discretion, to convert the principal amount of its Note, together with all accrued and unpaid interest, into shares of Series [A] Preferred Stock (the “Series [A] Preferred”), at a conversion price obtained by dividing the Valuation Cap by the Company’s fully-diluted capitalization (including any shares reserved for issuance under any equity plan).
Sale of the Company: Upon any Sale of the Company (as defined below) while the Notes are outstanding, the Notes will become immediately due and payable and the Company will pay the Investors an amount equal to two times (2x) the sum of outstanding principal of and accrued and unpaid interest on the Notes, and the Notes will be deemed repaid in full and terminated; provided, however, that at the option of each Investor, in lieu of such payment, the Investor may elect to convert its Note (and all accrued interest thereon) into shares of the Company’s Common Stock immediately prior to the Sale of the Company, at a conversion price equal to the lesser of (x) the price per share of Common Stock paid by the acquirer or as consideration for each share of Common Stock in a Sale, and (y) the price per share obtained by dividing the Valuation Cap by the Company’s fully-diluted and outstanding capitalization. For this purpose, a "Sale of the Company" means, generally, any reorganization, merger, sale, or other disposition to an unaffiliated third party of majority voting control of the Company or all or substantially all of the Company’s assets, or an exclusive license, or any liquidation or dissolution of the Company, in any such case whether directly or indirectly in any transaction or series of related transactions.
Financial Information: Investors will receive standard information and inspection rights and management rights letter.
Participation Right: Investors will have the right to participate on a pro rata basis in subsequent issuances of securities.
MFN Right: If the Company offers any more favorable investment terms to another investor, the same terms shall automatically be deemed to apply retroactively to any and all investments in the Company by the Investors.
Crytocurrencies: Approval of the Investors holding a majority in interest of the aggregate principal amount of the Notes is required to sell, issue, sponsor, create or distribute any digital tokens, blockchain-based assets, cryptocurrency or any other digital assets, including through a Simple Agreement for Future Tokens or other agreement, pre-sale, initial coin offering, token distribution event or crowdfunding.
Limitation on Senior Indebtedness: The Company will not incur, guarantee or otherwise become liable for any indebtedness or obligation that is senior in terms of right of repayment to the indebtedness evidenced by the Notes.
Key Holder Matters: Each Key Holder shall have four years vesting. Full acceleration upon “Double Trigger.” Each Key Holder and each current and former employee and consultant shall have assigned all relevant IP to the Company before closing.
Binding Terms: For a period of thirty days, the Company shall not solicit offers from other parties for any financing. Without the consent of the Investors, the Company shall not disclose these terms to anyone other than officers, directors, key service providers, and other potential Investors in this financing.
_____________________, INC.
BY: _____________________
Name: _____________________
Title: _____________________
Date: _____________________
BLOOMBERG BETA 2019 L.P.
BY: _____________________
Name: _____________________
Title: Authorized Signatory
Date: _____________________