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
DEBT FINANCING TERM SHEET
FOR THE PURCHASE AND SALE OF SECURED CONVERTIBLE
PROMISSORY NOTES OF
____________________, INC. [Instruction: Enter company name here.]
This Debt Financing Term Sheet (this â€œDebt Financing Term Sheetâ€) sets forth the
principal terms offered to __________________ [Instruction: Enter name of investor here.]
(the â€œInvestorâ€) for the purchase of convertible promissory notes of __________________
[Instruction: Enter company name here.], a _______ [Instruction: Enter state of
incorporation here.]corporation (the â€œCompanyâ€).
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 â€œNotesâ€).
2. Amount Invested
A minimum of __________ ($____) dollars and a maximum of _________ ($______) dollars.
Investor, as well as other investors designated by Company (collectively, the â€œNote Investorsâ€).
As soon as practicable following the Companyâ€™s acceptance of this Debt Financing Term Sheet
and satisfaction of the conditions described below under the caption â€œConditions to Closingâ€
(the â€œInitial Closingâ€). 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 Companyâ€™s IPO).
2. Terms of Conversion:
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The Notes would be convertible on the following terms:
A. At any time after the Closing, at the Investorâ€™s option, into a number of shares
of the Companyâ€™s Common Stock (the â€œCommon Sharesâ€), equal to __________
(____%) percent of the Companyâ€™s capital stock calculated on a fully diluted
B. In the event that the conversion contemplated by the foregoing clause shall
not have already occurred, then into the Companyâ€™s next issued series of
preferred shares (the â€œPreferred Sharesâ€) resulting in new money of not less than
_________ ($____) dollars (the â€œPreferred Financingâ€) 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 Companyâ€™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 Companyâ€™s Common Stock (the â€œCommon Sharesâ€)
immediately prior to such transaction at a price per share equal to the lesser of (the â€œCommon
Priceâ€) (y) the per share value of the Common Shares as then reasonably determined by the
Companyâ€™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 â€œarms-
lengthâ€ 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
â€œWarrantsâ€) to purchase that number of shares of Warrant Stock determined by dividing
________ ( __%) percent of the original principal amount of such purchaserâ€™s note by the
Warrant Exercise Price. â€œWarrant Stockâ€ 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. â€œWarrant Exercise Priceâ€ means the Series A Preferred Price,
unless the Warrant Stock is Common Shares, in which case the Warrant Exercise Price is the
Repayment of the Notes would be secured by a first priority security interest in collateral
consisting of all of the assets of the Company.
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SECTION III. GOVERNANCE
1. Protective Provisions:
The Company would not, without the written consent of the holders of at least a majority of the