Term Sheet 2014 Clean

This sample document is the work product of a national coalition of attorneys who specialize in
venture capital financings, working under the auspices of the NVCA. This document is intended to
serve as a starting point only, and should be tailored to meet your specific reuirements. This
document should not be construed as legal advice for any particular facts or circumstances. Note
that this sample document presents an array of !often mutually e"clusive# options with respect to
particular deal provisions.

TERM SHEET
Last Updated June 2013
Preliminary NOTE
This TERM SHEET maps to the NVCA MODEL DOCUMENTS, and for convenience the
provisions are ro!ped accordin to the partic!"ar MODEL DOCUMENT in #hich the$ ma$ %e
fo!nd& A"tho!h this TERM SHEET is perhaps some#hat "oner than a 't$pica"' VC Term Sheet,
the aim is to provide a "eve" of detai" that ma(es the TERM SHEET !sef!" as %oth a road map for
the doc!ment drafters and as a reference so!rce for the %!siness peop"e to )!ic("$ find dea" terms
#itho!t the necessit$ of havin to cons!"t the "ea" doc!ments *ass!min of co!rse there have %een
no chanes to the materia" dea" terms prior to e+ec!tion of the fina" doc!ments,&
Last Updated June 2013
TERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING OF
[INSERT COMPANY NAME], INC.
[ __, 20__]
This Term Sheet summarizes the principal terms of the Series !referred Stoc" #inancin$ of
[___________], %nc&, a ['ela(are] corporation )the *Company+,& %n consideration of the time and
e-pense de.oted and to /e de.oted /0 the %n.estors (ith respect to this in.estment, the 1o
Shop23onfidentialit0 [and 3ounsel and 4-penses] pro.isions of this Term Sheet shall /e /indin$
o/li$ations of the 3ompan0 (hether or not the financin$ is consummated& 1o other le$all0 /indin$
o/li$ations (ill /e created until definiti.e a$reements are e-ecuted and deli.ered /0 all parties&
This Term Sheet is not a commitment to in.est, and is conditioned on the completion of due
dili$ence, le$al re.ie( and documentation that is satisfactor0 to the %n.estors& This Term Sheet
shall /e $o.erned in all respects /0 the la(s of [______________the ]&
1
Offering Terms
C"osin Date- s soon as practica/le follo(in$ the 3ompan05s acceptance of this
Term Sheet and satisfaction of the 3onditions to 3losin$ )the
*Closing+,& [provide for m!"tip"e c"osins if app"ica%"e]
.nvestors- %n.estor 1o& 16 [_______] shares )[__]7,, 8[_________]
%n.estor 1o& 26 [_______] shares )[__]7,, 8[_________]
[as (ell other in.estors mutuall0 a$reed upon /0 %n.estors and the
3ompan0]
Amo!nt Raised- 8[________], [includin$ 8[________] from the con.ersion of
principal [and interest] on /rid$e notes]&
2
/rice /er Share- 8[________] per share )/ased on the capitalization of the 3ompan0
set forth /elo(, )the *Original Pr!"ase Pri!e+,&
/re0Mone$ Va"!ation- The 9ri$inal !urchase !rice is /ased upon a full0:diluted pre:mone0
1
The choice of la( $o.ernin$ a term sheet can /e important /ecause in some ;urisdictions a term sheet that
e-pressl0 states that it is non/indin$ ma0 nonetheless create an enforcea/le o/li$ation to ne$otiate the terms set forth in
the term sheet in $ood faith& 3ompare S.1A Techs&, .nc& v& /harmAthene, .nc&, Case No& C&A& 2324 * *De"& S!preme
Co!rt Ma$ 25, 2678, )holdin$ that (here parties a$reed to ne$otiate in $ood faith in accordance (ith a term sheet, that
o/li$ation (as enforcea/le not(ithstandin$ the fact that the term sheet itself (as not si$ned and contained a footer on
each pa$e statin$ *1on <indin$ Terms+,= E9T .nfrastr!ct!re Ltd& v& Smith, :37 ;& S!pp& 2d 226 *S&D&N&<& 2672,=
Stanford Hote"s Corp& v& /otomac Cree( Assocs&, L&/&, 7: A&8d 42> *D&C& App& 2677, #ith Rosenfie"d v& United States
Tr!st Co&, > 1&4& 323, 32? )@ass& 1A3>, )*n a$reement to reach an a$reement is a contradiction in terms and imposes
no o/li$ation on the parties thereo&+,= Martin v& Martin, 823 S&?&8d 457 *Te+& App& 2676,= Va& /o#er Ener$ M(t& v&
E9T Ener$, LLC, 2672 ?L 2@6>776 *E&D& Va& A!"$ 73, 2672,& s such, /ecause a *non/indin$+ term sheet $o.erned
/0 the la( of a ;urisdiction such as 'ela(are, 1e( Bor" or the 'istrict of 3olum/ia ma0 in fact create an enforcea/le
o/li$ation to ne$otiate in $ood faith to come to a$reement on the terms set forth in the term sheet, parties should $i.e
consideration to the choice of la( selected to $o.ern the term sheet&
2
@odif0 this pro.ision to account for sta$ed in.estments or in.estments dependent on the achie.ement of
milestones /0 the 3ompan0&
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.aluation of 8[_____] and a full0:diluted post:mone0 .aluation of 8
[______] )includin$ an emplo0ee pool representin$ [__]7 of the
full0:diluted post:mone0 capitalization,&
Capita"iBation- The 3ompan05s capital structure /efore and after the 3losin$ is set
forth on 4-hi/it &
CHARTER
#
Dividends- [A"ternative 7- 'i.idends (ill /e paid on the Series !referred on
an as:con.erted /asis (hen, as, and if paid on the 3ommon Stoc"]
[A"ternative 2: The Series !referred (ill carr0 an annual [__]7
cumulati.e di.idend [pa0a/le upon a liCuidation or redemption]&
#or an0 other di.idends or distri/utions, participation (ith 3ommon
Stoc" on an as:con.erted /asis&]
D
[A"ternative 8$ 1on:cumulati.e di.idends (ill /e paid on the Series
!referred in an amount eCual to 8[_____] per share of Series
!referred (hen and if declared /0 the <oard&]
Li)!idation /reference- %n the e.ent of an0 liCuidation, dissolution or (indin$ up of the
3ompan0, the proceeds shall /e paid as follo(s6
[A"ternative 7 *non0participatin /referred Stoc(,6 #irst pa0 [one]
times the 9ri$inal !urchase !rice [plus accrued di.idends] [plus
declared and unpaid di.idends] on each share of Series !referred
)or, if $reater, the amount that the Series !referred (ould recei.e
on an as:con.erted /asis,& The /alance of an0 proceeds shall /e
distri/uted pro rata to holders of 3ommon Stoc"&]
[A"ternative 2 *f!"" participatin /referred Stoc(,6 #irst pa0 [one]
times the 9ri$inal !urchase !rice [plus accrued di.idends] [plus
declared and unpaid di.idends] on each share of Series !referred&
Thereafter, the Series !referred participates (ith the 3ommon
Stoc" pro rata on an as:con.erted /asis&]
[A"ternative 8 *cap on /referred Stoc( participation rihts,6 #irst
3
The 3harter )3ertificate of %ncorporation, is a pu/lic document, filed (ith the Secretar0 of State of the
state in (hich the compan0 is incorporated, that esta/lishes all of the ri$hts, preferences, pri.ile$es and restrictions of
the !referred Stoc"&
D
%n some cases, accrued and unpaid di.idends are pa0a/le on con.ersion as (ell as upon a liCuidation
e.ent& @ost t0picall0, ho(e.er, di.idends are not paid if the preferred is con.erted& nother alternati.e is to $i.e the
3ompan0 the option to pa0 accrued and unpaid di.idends in cash or in common shares .alued at fair mar"et .alue& The
latter are referred to as *!%E+ )pa0ment:in:"ind, di.idends&
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pa0 [one] times the 9ri$inal !urchase !rice [plus accrued di.idends]
[plus declared and unpaid di.idends] on each share of Series
!referred& Thereafter, Series !referred participates (ith 3ommon
Stoc" pro rata on an as:con.erted /asis until the holders of Series
!referred recei.e an a$$re$ate of [_____] times the 9ri$inal
!urchase !rice )includin$ the amount paid pursuant to the precedin$
sentence,.]
mer$er or consolidation )other than one in (hich stoc"holders of
the 3ompan0 o(n a ma;orit0 /0 .otin$ po(er of the outstandin$
shares of the sur.i.in$ or acCuirin$ corporation, and a sale, lease,
transfer, e-clusi.e license or other disposition of all or su/stantiall0
all of the assets of the 3ompan0 (ill /e treated as a liCuidation e.ent
)a *Deeme% &i'i%a(ion E)en(+,, there/0 tri$$erin$ pa0ment of
the liCuidation preferences descri/ed a/o.e [unless the holders of
[___]7 of the Series !referred elect other(ise]& [The %n.estorsF
entitlement to their liCuidation preference shall not /e a/ro$ated or
diminished in the e.ent part of the consideration is su/;ect to escro(
in connection (ith a 'eemed LiCuidation 4.ent&]
>
Votin Rihts- The Series !referred shall .ote to$ether (ith the 3ommon Stoc"
on an as:con.erted /asis, and not as a separate class, e-cept )i, *so
long as *insert fixed number, or , or !any"+ s"ares of Series A
Preferre% are o(s(an%ing,+ the Series !referred as a class shall
/e entitled to elect [_______] [)_,] mem/ers of the <oard )the
*Series A Dire!(ors+,, an% )ii, as reCuired /0 la(& The 3ompan05s
3ertificate of %ncorporation (ill pro.ide that the num/er of
authorized shares of 3ommon Stoc" ma0 /e increased or decreased
(ith the appro.al of a ma;orit0 of the !referred and 3ommon Stoc",
.otin$ to$ether as a sin$le class, and (ithout a separate class .ote /0
the 3ommon Stoc"&
-

/rotective /rovisions- *So lon$ as [insert fi+ed n!m%er, or C, or Dan$E] shares of Series
!referred are outstandin$,+ in a%%i(ion (o any o("er )o(e or
appro)al re'ire% n%er ("e Company.s C"ar(er or /yla0s, the
3ompan0 (ill not, (ithout the (ritten consent of the holders of at
least [__]7 of the 3ompan05s Series !referred, either directl0 or
/0 amendment, mer$er, consolidation, or other(ise6
)i, liCuidate, dissol.e or (ind:up the affairs of the 3ompan0, or
effect an0 mer$er or consolidation or an0 other 'eemed
LiCuidation 4.ent= )ii, amend, alter, or repeal an0 pro.ision of
the 3ertificate of %ncorporation or <0la(s [in a manner ad.erse
>
See Su/section 2&3&D of the @odel 3ertificate of %ncorporation and the detailed e-planation in related
footnote 2>&
?
#or corporations incorporated in 3alifornia, one cannot *opt out+ of the statutor0 reCuirement of a
separate class .ote /0 3ommon Stoc"holders to authorize shares of 3ommon Stoc"& The purpose of this pro.ision is to
Gopt outG of 'HL 2D2)/,)2,&
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to the Series !referred]=
1
)iii, create or authorize the creation of
or issue an0 other securit0 con.erti/le into or e-ercisa/le for an0
eCuit0 securit0, ha.in$ ri$hts, preferences or pri.ile$es senior to
or on parit0 (ith the Series !referred, or increase the
authorized num/er of shares of Series !referred= )i., purchase
or redeem or pa0 an0 di.idend on an0 capital stoc" prior to the
Series !referred, [other than stoc" repurchased from former
emplo0ees or consultants in connection (ith the cessation of
their emplo0ment2ser.ices, at the lo(er of fair mar"et .alue or
cost=] [other than as appro.ed /0 the <oard, includin$ the
appro.al of [_____] Series 'irector)s,]= or )., create or
authorize the creation of an0 de/t securit0 [if the 3ompan05s
a$$re$ate inde/tedness (ould e-ceed 8[____][other than
eCuipment leases or /an" lines of credit]*unless such de/t
securit0 has recei.ed the prior appro.al of the <oard of
'irectors, includin$ the appro.al of [________] Series
'irector)s,]= ).i2 !rea(e or "ol% !api(al s(o!3 in any s4si%iary
("a( is no( a 0"olly5o0ne% s4si%iary or %ispose of any
s4si%iary s(o!3 or all or s4s(an(ially all of any s4si%iary
asse(s6 *or 7)ii, increase or decrease the size of the <oard of
'irectors]&
8

Optiona" Conversion- The Series !referred initiall0 con.erts 161 to 3ommon Stoc" at
an0 time at option of holder, su/;ect to ad;ustments for stoc"
di.idends, splits, com/inations and similar e.ents and as descri/ed
/elo( under *nti:dilution !ro.isions&+
Anti0di"!tion /rovisions- %n the e.ent that the 3ompan0 issues additional securities at a
purchase price less than the current Series !referred con.ersion
price, such con.ersion price shall /e ad;usted in accordance (ith the
follo(in$ formula6
[A"ternative 7- *T0pical+ (ei$hted a.era$e6
3!2 I 3!1 J )K<, 2 )K3,
3!2 I Series 3on.ersion !rice in effect immediatel0
after ne( issue
3!1 I Series 3on.ersion !rice in effect immediatel0
prior to ne( issue
I 1um/er of shares of 3ommon Stoc" deemed to /e
outstandin$ immediatel0 prior to ne( issue )includes
L
1ote that as a matter of /ac"$round la(, Section 2D2)/,)2, of the 'ela(are Heneral 3orporation La(
pro.ides that if an0 proposed charter amendment (ould ad.ersel0 alter the ri$hts, preferences and po(ers of one series
of !referred Stoc", /ut not similarl0 ad.ersel0 alter the entire class of all !referred Stoc", then the holders of that series
are entitled to a separate series .ote on the amendment&
M
The /oard size pro.ision ma0 also /e addressed in the Notin$ $reement= see Section 1&1 of the @odel
Notin$ $reement&
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all shares of outstandin$ common stoc", all shares of
outstandin$ preferred stoc" on an as:con.erted /asis,
and all outstandin$ options on an as:e-ercised /asis=
and does not include an0 con.erti/le securities
con.ertin$ into this round of financin$,
A

< I $$re$ate consideration recei.ed /0 the 3orporation
(ith respect to the ne( issue di.ided /0 3!1
3 I 1um/er of shares of stoc" issued in the su/;ect
transaction]
[A"ternative 2- #ull:ratchet O the con.ersion price (ill /e reduced to
the price at (hich the ne( shares are issued&]
[A"ternative 86 1o price:/ased anti:dilution protection&]
The follo(in$ issuances shall not tri$$er anti:dilution ad;ustment6
9:
)i, securities issua/le upon con.ersion of an0 of the Series
!referred, or as a di.idend or distri/ution on the Series
!referred= )ii, securities issued upon the con.ersion of an0
de/enture, (arrant, option, or other con.erti/le securit0= )iii,
3ommon Stoc" issua/le upon a stoc" split, stoc" di.idend, or
an0 su/di.ision of shares of 3ommon Stoc"= and )i., shares of
3ommon Stoc" )or options to purchase such shares of 3ommon
Stoc", issued or issua/le to emplo0ees or directors of, or
consultants to, the 3ompan0 pursuant to an0 plan appro.ed /0
the 3ompan05s <oard of 'irectors [includin$ at least [_______]
Series 'irector)s,]&
Mandator$ Conversion- 4ach share of Series !referred (ill automaticall0 /e con.erted
into 3ommon Stoc" at the then applica/le con.ersion rate in the
e.ent of the closin$ of a [firm commitment] under(ritten pu/lic
offerin$ (ith a price of [___] times the 9ri$inal !urchase !rice
)su/;ect to ad;ustments for stoc" di.idends, splits, com/inations and
similar e.ents, and [net2$ross] proceeds to the 3ompan0 of not less
than 8[_______] )a *;PO+,, or )ii, upon the (ritten consent of the
holders of [__]7 of the Series !referred&
11
[/a$0to0/"a$- [Unless the holders of [__]7 of the Series elect other(ise,] on an0
su/seCuent [do(n] round all [@a;or] %n.estors are reCuired to
purchase their pro rata share of the securities set aside /0 the <oard
for purchase /0 the [@a;or] %n.estors& ll shares of Series
A
The G/roadestG /ase (ould include shares reser.ed in the option pool&
10
1ote that additional e-clusions are freCuentl0 ne$otiated, such as issuances in connection (ith eCuipment
leasin$ and commercial /orro(in$. See Su/sections D&D&1)d,).,:).iii, of the @odel 3ertificate of %ncorporation for
additional e-clusions&
11
The per share test ensures that the in.estor achie.es a si$nificant return on in.estment /efore the
3ompan0 can $o pu/lic& lso consider allo(in$ a non:P!9 to /ecome a P!9 if an ad;ustment is made to the
3on.ersion !rice for the /enefit of the in.estor, so that the in.estor does not ha.e the po(er to /loc" a pu/lic offerin$&
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!referred
12
of an0 [@a;or] %n.estor failin$ to do so (ill
automaticall0 [lose anti:dilution ri$hts] [lose ri$ht to participate in
future rounds] [con.ert to 3ommon Stoc" and lose the ri$ht to a
<oard seat if applica/le]&]
13
Redemption Rihts-
#$
Unless prohi/ited /0 'ela(are la( $o.ernin$ distri/utions to
stoc"holders, the Series !referred shall /e redeema/le at the
option of holders of at least [__]7 of the Series !referred
commencin$ an0 time after *<<<<<<<<+ at a price eCual to the
9ri$inal !urchase !rice [plus all accrued /ut unpaid di.idends]&
Qedemption shall occur in three eCual annual portions& Upon a
redemption reCuest from the holders of the reCuired percenta$e of
the Series !referred, all Series !referred shares shall /e
redeemed [)e-cept for an0 Series holders (ho affirmati.el0 opt:
out,]&
9=

STOCK P>RCHASE AGREEMENT
Representations and
?arranties-
Standard representations and (arranties /0 the 3ompan0&
[Qepresentations and (arranties /0 #ounders re$ardin$ technolo$0
o(nership, etc&]&
1?
Conditions to C"osin- Standard conditions to 3losin$, (hich shall include, amon$ other
thin$s, satisfactor0 completion of financial and le$al due dili$ence,
12
lternati.el0, this pro.ision could appl0 on a proportionate /asis )e&&, if %n.estor pla0s for R of pro rata
share, recei.es R of anti:dilution ad;ustment,&
13
%f the punishment for failure to participate is losin$ some /ut not all ri$hts of the !referred )e&&, an0thin$
other than a forced con.ersion to common,, the 3ertificate of %ncorporation (ill need to ha.e so:called */lan" chec"
preferred+ pro.isions at least to the e-tent necessar0 to ena/le the <oard to issue a *shado(+ class of preferred (ith
diminished ri$hts in the e.ent an in.estor fails to participate& s a draftin$ matter, it is far easier to simpl0 ha.e )some
or all of, the preferred con.ert to common&
1D
Qedemption ri$hts allo( %n.estors to force the 3ompan0 to redeem their shares at cost )and sometimes
in.estors ma0 also reCuest a small $uaranteed rate of return, in the form of a di.idend,& %n practice, redemption ri$hts
are not often used= ho(e.er, the0 do pro.ide a form of e-it and some possi/le le.era$e o.er the 3ompan0& Shile it is
possi/le that the ri$ht to recei.e di.idends on redemption could $i.e rise to a 3ode Section 30> *deemed di.idend+
pro/lem, man0 ta- practitioners ta"e the .ie( that if the liCuidation preference pro.isions in the 3harter are drafted to
pro.ide that, on con.ersion, the holder recei.es the $reater of its liCuidation preference or its as:con.erted amount )as
pro.ided in the @odel 3ertificate of %ncorporation,, then there is no Section 30> issue&
1>
'ue to statutor0 restrictions, the 3ompan0 ma0 not /e le$all0 permitted to redeem in the .er0
circumstances (here in.estors most (ant it )the so:called *side(a0s situation+,& ccordin$l0, and particular0 in li$ht
of the 'ela(are 3hancer0 3ourt5s rulin$ in Tho!ht#or(s *see discussion in @odel 3harter,, in.estors ma0 see"
enforcement pro.isions to $i.e their redemption ri$hts more teeth : e&&, the holders of a ma;orit0 of the Series
!referred shall /e entitled to elect a ma;orit0 of the 3ompan05s <oard of 'irectors, or shall ha.e consent ri$hts on
3ompan0 cash e-penditures, until such amounts are paid in full&
1?
#ounders5 representations are contro.ersial and ma0 elicit si$nificant resistance as the0 are found in a minorit0
of .enture deals& The0 are more li"el0 to appear if #ounders are recei.in$ liCuidit0 from the transaction, or if there is
hei$htened concern o.er intellectual propert0 )e&&, the 3ompan0 is a spin:out from an academic institution or the
#ounder (as formerl0 (ith another compan0 (hose /usiness could /e deemed competiti.e (ith the 3ompan0,, or in
international deals& #ounders5 representations are e.en less common in su/seCuent rounds, (here ris" is .ie(ed as
si$nificantl0 diminished and fairl0 shared /0 the in.estors, rather than /ein$ disproportionatel0 /orne /0 the #ounders&
sample set of #ounders Qepresentations is attached as an ddendum at the end of the @odel Stoc" !urchase
$reement&
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Cualification of the shares under applica/le <lue S"0 la(s, the filin$
of a 3ertificate of %ncorporation esta/lishin$ the ri$hts and
preferences of the Series !referred, and an opinion of counsel to
the 3ompan0&
Co!nse" and E+penses- [%n.estor23ompan0] counsel to draft 3losin$ documents& 3ompan0
to pa0 all le$al and administrati.e costs of the financin$ [at
3losin$], includin$ reasona/le fees )not to e-ceed 8[_____],and
e-penses of %n.estor counsel[, unless the transaction is not
completed /ecause the %n.estors (ithdra( their commitment
(ithout cause]&
1L

3ompan0 3ounsel6 [

]
%n.estor 3ounsel6 [

]
IN?ESTORS. RIGHTS AGREEMENT
Reistration Rihts-
Reistra%"e Sec!rities- ll shares of 3ommon Stoc" issua/le upon con.ersion of the Series
!referred [and [an0 other 3ommon Stoc" held /0 the %n.estors]
(ill /e deemed *Regis(ra4le Se!ri(ies&+
1M
Demand Reistration- Upon earliest of )i, [three:fi.e] 0ears after the 3losin$= or )ii, [si-]
months
1A
follo(in$ an initial pu/lic offerin$ )*IPO+,, persons
holdin$ [__]7 of the Qe$istra/le Securities ma0 reCuest [one][t(o]
)consummated, re$istrations /0 the 3ompan0 of their shares& The
a$$re$ate offerin$ price for such re$istration ma0 not /e less than
8[>:1>] million& re$istration (ill count for this purpose onl0 if )i,
all Qe$istra/le Securities reCuested to /e re$istered are re$istered,
and )ii, it is closed, or (ithdra(n at the reCuest of the %n.estors
)other than as a result of a material ad.erse chan$e to the 3ompan0,&
Reistration on ;orm S08- The holders of [10:30]7 of the Qe$istra/le Securities (ill ha.e the
ri$ht to reCuire the 3ompan0 to re$ister on #orm S:3, if a.aila/le for
1L
The /rac"eted te-t should /e deleted if this section is not desi$nated in the introductor0 para$raph as one
of the sections that is /indin$ upon the 3ompan0 re$ardless of (hether the financin$ is consummated&
1M
1ote that #ounders2mana$ement sometimes also see" limited re$istration ri$hts&
1A
The 3ompan0 (ill (ant the percenta$e to /e hi$h enou$h so that a si$nificant portion of the in.estor /ase
is /ehind the demand& 3ompanies (ill t0picall0 resist allo(in$ a sin$le in.estor to cause a re$istration& 4-perienced
in.estors (ill (ant to ensure that less e-perienced in.estors do not ha.e the ri$ht to cause a demand re$istration& %n
some cases, different series of !referred Stoc" ma0 reCuest the ri$ht for that series to initiate a certain num/er of
demand re$istrations& 3ompanies (ill t0picall0 resist this due to the cost and di.ersion of mana$ement resources (hen
multiple constituencies ha.e this ri$ht&
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use /0 the 3ompan0, Qe$istra/le Securities for an a$$re$ate offerin$
price of at least 8[1:> million]& There (ill /e no limit on the
a$$re$ate num/er of such #orm S:3 re$istrations, pro.ided that
there are no more than [t(o] per 0ear&
/i$%ac( Reistration- The holders of Qe$istra/le Securities (ill /e entitled to *pi$$0/ac"+
re$istration ri$hts on all re$istration statements of the 3ompan0,
su/;ect to the ri$ht, ho(e.er, of the 3ompan0 and its under(riters to
reduce the num/er of shares proposed to /e re$istered to a minimum
of [20:30]7 on a pro rata /asis and to complete reduction on an %!9
at the under(riter5s discretion& %n all e.ents, the shares to /e
re$istered /0 holders of Qe$istra/le Securities (ill /e reduced onl0
after all other stoc"holders5 shares are reduced&
E+penses- The re$istration e-penses )e-clusi.e of stoc" transfer ta-es,
under(ritin$ discounts and commissions (ill /e /orne /0 the
3ompan0& The 3ompan0 (ill also pa0 the reasona/le fees and
e-penses[, not to e-ceed 8______,] of one special counsel to
represent all the participatin$ stoc"holders&
Loc(0!p- %n.estors shall a$ree in connection (ith the %!9, if reCuested /0 the
mana$in$ under(riter, not to sell or transfer an0 shares of 3ommon
Stoc" of the 3ompan0 [)includin$2e-cludin$ shares acCuired in or
follo(in$ the %!9,] for a period of up to 1M0 da0s [plus up to an
additional 1M da0s to the e-tent necessar0 to compl0 (ith applica/le
re$ulator0 reCuirements]
20
follo(in$ the %!9 )pro.ided all directors
and officers of the 3ompan0 [and [1 O >]7 stoc"holders] a$ree to
the same loc":up,& [Such loc":up a$reement shall pro.ide that an0
discretionar0 (ai.er or termination of the restrictions of such
a$reements /0 the 3ompan0 or representati.es of the under(riters
shall appl0 to %n.estors, pro rata, /ased on the num/er of shares
held&
Termination- Upon a 'eemed LiCuidation 4.ent, [and2or] (hen all shares of an
%n.estor are eli$i/le to /e sold (ithout restriction under Qule 1DD
[and2or] the [____] anni.ersar0 of the %!9.
1o future re$istration ri$hts ma0 /e $ranted (ithout consent of the
holders of a [ma;orit0] of the Qe$istra/le Securities unless
su/ordinate to the %n.estor5s ri$hts&
Manaement and .nformation
Rihts-
@ana$ement Qi$hts letter from the 3ompan0, in a form
reasona/l0 accepta/le to the %n.estors, (ill /e deli.ered prior to
3losin$ to each %n.estor that reCuests one&
21
20
See commentar0 in footnotes 23 and 2D of the @odel %n.estors5 Qi$hts $reement re$ardin$ possi/le
e-tensions of loc":up period&
21
See commentar0 in introduction to @odel @ana$ements Qi$hts Letter, e-plainin$ purpose of such letter&
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n0 [@a;or] %n.estor [)(ho is not a competitor,] (ill /e $ranted
access to 3ompan0 facilities and personnel durin$ normal /usiness
hours and (ith reasona/le ad.ance notification& The 3ompan0 (ill
deli.er to such @a;or %n.estor )i, annual, Cuarterl0, [and monthl0]
financial statements, and other information as determined /0 the
<oard= )ii, thirt0 da0s prior to the end of each fiscal 0ear, a
comprehensi.e operatin$ /ud$et forecastin$ the 3ompan05s
re.enues, e-penses, and cash position on a month:to:month /asis for
the upcomin$ fiscal 0ear[= and )iii, promptl0 follo(in$ the end of
each Cuarter an up:to:date capitalization ta/le& *@a;or %n.estor+
means an0 %n.estor (ho purchases at least 8[______] of Series
!referred&
Riht to /articipate /ro Rata in
;!t!re Ro!nds-
ll [@a;or] %n.estors shall ha.e a pro rata ri$ht, /ased on their
percenta$e eCuit0 o(nership in the 3ompan0 )assumin$ the
con.ersion of all outstandin$ !referred Stoc" into 3ommon Stoc"
and the e-ercise of all options outstandin$ under the 3ompan05s
stoc" plans,, to participate in su/seCuent issuances of eCuit0
securities of the 3ompan0 )e-cludin$ those issuances listed at the
end of the *nti:dilution !ro.isions+ section of this Term Sheet& %n
addition, should an0 [@a;or] %n.estor choose not to purchase its full
pro rata share, the remainin$ [@a;or] %n.estors shall ha.e the ri$ht
to purchase the remainin$ pro rata shares&
Matters Re)!irin .nvestor
Director Approva"-
*So lon$ as the "ol%ers of Series !referred are en(i(le% (o ele!( a
Series A Dire!(or, the 3ompan0 (ill not, (ithout <oard appro.al,
(hich appro.al must include the affirmati.e .ote of [one@4o("] of
the Series 'irector)s,6
)i, ma"e an0 loan or ad.ance to, or o(n an0 stoc" or other
securities of, an0 su/sidiar0 or other corporation, partnership, or
other entit0 unless it is (holl0 o(ned /0 the 3ompan0= )ii, ma"e
an0 loan or ad.ance to an0 person, includin$, an0 emplo0ee or
director, e-cept ad.ances and similar e-penditures in the
ordinar0 course of /usiness or under the terms of a emplo0ee
stoc" or option plan appro.ed /0 the <oard of 'irectors= )iii,
$uarantee, an0 inde/tedness e-cept for trade accounts of the
3ompan0 or an0 su/sidiar0 arisin$ in the ordinar0 course of
/usiness= )i., ma"e an0 in.estment in!onsis(en( 0i(" any
in)es(men( poli!y appro)e% 4y ("e /oar%= )., incur an0
a$$re$ate inde/tedness in e-cess of 8[_____] that is not alread0
included in a <oard:appro.ed /ud$et, other than trade credit
incurred in the ordinar0 course of /usiness= ).i, enter into or /e a
part0 to an0 transaction (ith an0 director, officer or emplo0ee of
the 3ompan0 or an0 *associate+ )as defined in Qule 12/:2
promul$ated under the 4-chan$e ct, of an0 such person
[e-cept transactions resultin$ in pa0ments to or /0 the 3ompan0
in an amount less than 8[?0,000] per 0ear], [or transactions made
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in the ordinar0 course of /usiness and pursuant to reasona/le
reCuirements of the 3ompan05s /usiness and upon fair and
reasona/le terms that are appro.ed /0 a ma;orit0 of the <oard of
'irectors]=
AA
).ii, hire, fire, or chan$e the compensation of the
e-ecuti.e officers, includin$ appro.in$ an0 option gran(s= ).iii,
chan$e the principal /usiness of the 3ompan0, enter ne( lines of
/usiness, or e-it the current line of /usiness= )i-, sell, assign,
license, pled$e or encum/er ma(erial technolo$0 or intellectual
propert0, other than licenses $ranted in the ordinar0 course of
/usiness6 or 7B2 en(er in(o any !orpora(e s(ra(egi! rela(ions"ip
in)ol)ing ("e paymen( !on(ri4(ion or assignmen( 4y ("e
Company or (o ("e Company of asse(s grea(er ("an
*C9::,:::.::+&
Non0Competition and Non0
So"icitation Areements-
28

4ach #ounder and "e0 emplo0ee (ill enter into a [one] 0ear non:
competition and non:solicitation a$reement in a form reasona/l0
accepta/le to the %n.estors&
Non0Disc"os!re and
Deve"opments Areement-
4ach current and former #ounder, emplo0ee and consultant (ill
enter into a non:disclosure and proprietar0 ri$hts assi$nment
a$reement in a form reasona/l0 accepta/le to the %n.estors&
Foard Matters- [4ach <oard 3ommittee shall include at least one Series 'irector&]
The <oard of 'irectors shall meet at least [monthl0][Cuarterl0],
unless other(ise a$reed /0 a .ote of the ma;orit0 of 'irectors&
The 3ompan0 (ill /ind 'T9 insurance (ith a carrier and in an
amount satisfactor0 to the <oard of 'irectors& 3ompan0 to enter
into %ndemnification $reement (ith each Series 'irector [and
affiliated funds] in form accepta/le to such director& %n the e.ent the
3ompan0 mer$es (ith another entit0 and is not the sur.i.in$
corporation, or transfers all of its assets, proper pro.isions shall /e
made so that successors of the 3ompan0 assume the 3ompan05s
o/li$ations (ith respect to indemnification of 'irectors&
Emp"o$ee Stoc( Options- ll emplo0ee options to .est as follo(s6 [2>7 after one 0ear, (ith
remainin$ .estin$ monthl0 o.er ne-t 3? months]&
22
1ote that Section D02 of the Sar/anes:9-le0 ct of 2003 (ould reCuire repa0ment of an0 loans in full
prior to the 3ompan0 filin$ a re$istration statement for an %!9&
23
1ote that non:compete restrictions )other than in connection (ith the sale of a /usiness, are prohi/ited in
3alifornia, and ma0 not /e enforcea/le in other ;urisdictions, as (ell& %n addition, some in.estors do not reCuire such
a$reements for fear that emplo0ees (ill reCuest additional consideration in e-chan$e for si$nin$ a 1on:3ompete21on:
Solicit )and indeed the a$reement ma0 ar$ua/l0 /e in.alid a/sent such additional consideration : althou$h ha.in$ an
emplo0ee si$n a non:compete contemporaneous (ith hirin$ constitutes adeCuate consideration in ;urisdictions (here
non:competes are $enerall0 enforcea/le,& 9thers ta"e the .ie( that it should /e up to the <oard on a case:/0:case /asis
to determine (hether an0 particular "e0 emplo0ee is reCuired to si$n such an a$reement& 1on:competes t0picall0 ha.e
a one 0ear duration, althou$h state la( ma0 permit up to t(o 0ears& 1ote also that some states ma0 reCuire that a ne#
1on:3ompete /e si$ned (here there is a material chan$e in the emplo0ee5s duties2salar02title&
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[%mmediatel0 prior to the Series !referred Stoc" in.estment,
[______] shares (ill /e added to the option pool creatin$ an
unallocated option pool of [_______] shares&]
Ge$ /erson .ns!rance- 3ompan0 to acCuire life insurance on #ounders [name each
;o!nder] in an amount satisfactor0 to the <oard& !roceeds pa0a/le
to the 3ompan0&
RIGHT OF FIRST REF>SA&@CO5SA&E AGREEMENT
Riht of ;irst Ref!sa"H
Riht of Co0Sa"e *Ta(e0Me0
A"on,-
3ompan0 first and %n.estors second )to the e-tent assi$ned /0 the
<oard of 'irectors,, (ill ha.e a ri$ht of first refusal (ith respect to
an0 shares of capital stoc" of the 3ompan0 proposed to /e
transferred /0 #ounders [and future emplo0ees holdin$ $reater than
[1]7 of 3ompan0 3ommon Stoc" )assumin$ con.ersion of
!referred Stoc" and (hether then held or su/;ect to the e-ercise of
options,], (ith a ri$ht of o.ersu/scription for %n.estors of shares
unsu/scri/ed /0 the other %n.estors& <efore an0 such person ma0
sell 3ommon Stoc", he (ill $i.e the %n.estors an opportunit0 to
participate in such sale on a /asis proportionate to the amount of
securities held /0 the seller and those held /0 the participatin$
%n.estors&
2D

?OTING AGREEMENT
Foard of Directors- t the initial 3losin$, the <oard shall consist of [______] mem/ers
comprised of )i, [name] as [the representati.e desi$nated /0 [____],
as the lead %n.estor, )ii, [name] as the representati.e desi$nated /0
the remainin$ %n.estors, )iii, [name] as the representati.e desi$nated
/0 the #ounders, )i., the person then ser.in$ as the 3hief 4-ecuti.e
9fficer of the 3ompan0, and )., [___] person)s, (ho are not
emplo0ed /0 the 3ompan0 and (ho are mutuall0 accepta/le [to the
#ounders and %n.estors][to the other directors]&
[Dra A"on: Uolders of !referred Stoc" and the #ounders [and all future holders
of $reater than [1]7 of 3ommon Stoc" )assumin$ con.ersion of
!referred Stoc" and (hether then held or su/;ect to the e-ercise of
options,] shall /e reCuired to enter into an a$reement (ith the
%n.estors that pro.ides that such stoc"holders (ill .ote their shares
in fa.or of a 'eemed LiCuidation 4.ent or transaction in (hich >07
or more of the .otin$ po(er of the 3ompan0 is transferred and
(hich is appro.ed /0 [the <oard of 'irectors] [and the holders of
____7 of the outstandin$ shares of !referred Stoc", on an as:
con.erted /asis )the *Ele!(ing Hol%ers+,], so lon$ as the lia/ilit0 of
each stoc"holder in such transaction is se.eral )and not ;oint, and
2D
3ertain e-ceptions are t0picall0 ne$otiated, e&&, estate plannin$ or de minimis transfers& %n.estors ma0 also
see" Q9#Q ri$hts (ith respect to transfers /0 in.estors, in order to /e a/le to ha.e some control o.er the composition
of the in.estor $roup&
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does not e-ceed the stoc"holderFs pro rata portion of an0 claim and
the consideration to /e paid to the stoc"holders in such transaction
(ill /e allocated as if the consideration (ere the proceeds to /e
distri/uted to the 3ompan0Fs stoc"holders in a liCuidation under the
3ompan0Fs then:current 3ertificate of %ncorporation&]
2>

[Sa"e Rihts- Upon (ritten notice to the 3ompan0 from the 4lectin$ Uolders, the
3ompan0 shall initiate a process intended to result in a sale of the
3ompan0&]
2?
OTHER MATTERS
;o!ndersI Stoc(- ll #ounders to o(n stoc" outri$ht su/;ect to 3ompan0 ri$ht to
/u0/ac" at cost& <u0/ac" ri$ht for [__]7 for first [12 months] after
3losin$= thereafter, ri$ht lapses in eCual [monthl0] increments o.er
follo(in$ [__] months&
[E+istin /referred Stoc(-
24
The terms set forth a/o.e for the Series [_] !referred Stoc" are
su/;ect to a re.ie( of the ri$hts, preferences and restrictions for the
e-istin$ !referred Stoc"& n0 chan$es necessar0 to conform the
e-istin$ !referred Stoc" to this term sheet (ill /e made at the
3losin$&]
No ShopHConfidentia"it$- The 3ompan0 a$rees to (or" in $ood faith e-peditiousl0 to(ards a
closin$& The 3ompan0 and the #ounders a$ree that the0 (ill not,
for a period of [______] (ee"s from the date these terms are
accepted, ta"e an0 action to solicit, initiate, encoura$e or assist the
su/mission of an0 proposal, ne$otiation or offer from an0 person or
entit0 other than the %n.estors relatin$ to the sale or issuance, of an0
of the capital stoc" of the 3ompan0 [or the acCuisition, sale, lease,
license or other disposition of the 3ompan0 or an0 material part of
the stoc" or assets of the 3ompan0] and shall notif0 the %n.estors
promptl0 of an0 inCuiries /0 an0 third parties in re$ards to the
fore$oin$& [%n the e.ent that the 3ompan0 /reaches this no:shop
o/li$ation and, prior to [________], closes an0 of the a/o.e:
referenced transactions [(ithout pro.idin$ the %n.estors the
opportunit0 to in.est on the same terms as the other parties to such
transaction], then the 3ompan0 shall pa0 to the %n.estors 8
[_______] upon the closin$ of an0 such transaction as liCuidated
dama$es&]
2M
The 3ompan0 (ill not disclose the terms of this Term
Sheet to an0 person other than officers, mem/ers of the <oard of
2>
See Su/section 3&3 of the @odel Notin$ $reement for a more detailed list o f conditions that must /e
satisfied in order for the dra$:alon$ to /e in.o"ed&
2?
See ddendum to @odel Notin$ $reement
2L
1ecessar0 onl0 if this is a later round of financin$, and not the initial Series round&
2M
%t is unusual to pro.ide for such */rea":up+ fees in connection (ith a .enture capital financin$, /ut mi$ht
/e somethin$ to consider (here there is a su/stantial possi/ilit0 the 3ompan0 ma0 /e sold prior to consummation of the
financin$ )e&&, a later sta$e deal,&
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'irectors and the 3ompan05s accountants and attorne0s and other
potential %n.estors accepta/le to [_________], as lead %n.estor,
(ithout the (ritten consent of the %n.estors&
E+piration- This Term Sheet e-pires on [_______ __, 20__] if not accepted /0
the 3ompan0 /0 that date&
4V43UT4' TU%S [__] 'B 9# [_________],20[<<_]&
[S%H1TUQ4 <L93ES]
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4VU%<%T
!re and !ost:#inancin$ 3apitalization
Pre-Financing Post-Financing
Security # of Shares % # of Shares %
Common – Founders
Common – Employee Stock Pool
Issued
Unissued
[Common – Warrants]
Series A Preferred
Total