Founder Venture Debt Term Sheet Extended Form

Matter Completion Sheet

This form is organized as a lender-style summary of terms rewritten from the Company’s side. Every operative provision is followed by a Drafting note stating the lender’s typical opening ask, the current market range and the founder-protective position. Capitalized terms are defined in Schedule 5. Schedule 3 consolidates the negotiation positions for every economic term, and Schedule 4 contains the inputs for the total cost of capital model that the board should see before accepting any proposal. Market ranges stated in this form are practitioner observations for U.S. venture-backed borrowers with institutional investors as of the version date and must be verified against current proposals.

TERM SHEET

Summary of Proposed Terms — Senior Secured Venture Debt Facility

Date: [DATE]

This term sheet (this Term Sheet) summarizes proposed terms for a venture-debt financing of [BORROWER LEGAL NAME], a [STATE] [ENTITY TYPE] (the Company), by [LENDER LEGAL NAME] (the Lender). Except for Section 20.1 and Sections 21 through 26 (the Binding Provisions), this Term Sheet is a nonbinding basis for discussion, does not constitute a commitment by Lender to extend credit or by the Company to borrow, and does not create any obligation to negotiate other than as stated in the Binding Provisions. The definitive loan and security agreement (the Loan Agreement) and the other Loan Documents will govern the financing when executed.

1 Parties and Roles

1.1 Borrower

The borrower is the Company, together with any Person that later becomes a co-borrower under the Loan Agreement. The Company’s jurisdiction of organization, organizational identification number, chief executive office and each direct and indirect subsidiary (with jurisdiction and ownership percentage) will be listed in the perfection certificate. Co-borrowers are jointly and severally liable for all Obligations.

1.2 Guarantors

Each existing and future [domestic] subsidiary of the Company, other than any Excluded Subsidiary, will unconditionally guarantee the Obligations and grant a lien on its assets as described in Section 8 (each, a Guarantor, and together with the Company, the Loan Parties). Foreign subsidiaries are addressed in Section 8.5. No founder, officer, director, stockholder or investor will guarantee or otherwise be liable for the Obligations, and Lender will not require a validity, “bad-boy” or completion guaranty from any individual.

1.3 Lender, Agent and Participants

The Lender is [LENDER LEGAL NAME], [an FDIC-insured depository institution / a non-bank venture lending fund / a business development company / other], [acting for itself and as administrative and collateral agent (in that capacity, the Agent) for itself and any other lenders that become party to the Loan Agreement]. Lender may sell participations in, or assign, its rights and obligations only to an Eligible Assignee; before an Event of Default, any assignment (other than to an Affiliate of Lender or to a lender under the Loan Agreement) requires the Company’s consent, not to be unreasonably withheld, and no assignment or participation may be made at any time to a Disqualified Lender. Participants have no direct rights against the Loan Parties, and any vote of lenders will be exercised through the Agent under the Required Lenders standard described in Section 15.6.

1.4 Non-Parties

The Company’s founders, directors and investors are not parties to this Term Sheet or the Loan Documents and undertake no obligation to fund, support or guarantee the Company. Lender will communicate with investors regarding the Company only through the Company or with the Company’s consent, except as permitted under Section 21.

2 Facility Structure

2.1 Facility Type and Total Commitment

Lender proposes a senior secured credit facility in an aggregate principal amount of up to $[TOTAL COMMITMENT] (the Total Commitment), consisting of the tranches described in Section 2.2 and Schedule 2. Each tranche is a separate commitment with its own availability period, draw conditions and fees. No reference to the Total Commitment creates an obligation to fund any tranche whose conditions are not satisfied, and nothing in the Loan Documents obligates the Company to draw any tranche.

2.2 Tranches and Availability

Any tranche not drawn by the end of its Availability Period terminates automatically without fee other than any unused fee accrued under Section 5.2.

2.3 Draw Conditions and Milestones

Each milestone that gates a tranche (a Milestone) will be stated in Schedule 2 and will specify: the metric and its accounting basis; the measurement date or period; the evidence to be delivered; the Person who determines satisfaction and the standard applied; any re-test or cure window; the treatment of a dispute; and the consequence of failure. Failure to achieve a Milestone terminates availability of the related tranche and is not a Default or an Event of Default. A Milestone is deemed satisfied if the Company closes a Qualified Equity Financing before the end of the applicable Availability Period.

2.4 Minimum Draw, Number of Draws and Borrowing Procedure

Advances under each tranche will be in minimum amounts and integral multiples stated in Section 2.2, and the Company will not be required to draw the full commitment of any tranche to preserve availability of the undrawn balance. The Company will deliver a borrowing request at least [2 / 3] Business Days before the requested funding date specifying the tranche, amount, date, account and use of proceeds and confirming satisfaction of the applicable conditions (a Borrowing Request). A Borrowing Request contains only the representations required by the Loan Agreement and is not an independent certification of facts outside those representations. Funding instructions, and any change to them, must be verified through a previously established channel under a written anti-fraud protocol before Lender releases funds.

2.5 Revolving Component

If a revolving component (the Revolving Tranche) is included, Advances will be limited to the lesser of the revolving commitment and a borrowing base equal to [●]% of Eligible Accounts [plus [●]% of Eligible Inventory], less reserves established by Lender in its reasonable credit judgment with [5] Business Days’ notice. The Company will deliver a borrowing base certificate [monthly / with each Advance]. Cash dominion over collections will be springing and will apply only after an Event of Default or if Liquidity falls below $[●]. No annual clean-down will be required. Field examinations will be limited to one per year at the Company’s expense, capped at $[●], absent an Event of Default.

2.6 Founder Decision Standard

Before accepting this proposal, the Company will compare the facility against an equity financing or no financing using at least: effective cash yield under Schedule 4; Warrant dilution; fees; prepayment cost; amortization start relative to the expected next round; collateral reach; operating restrictions; default probability; remedies; fundraising constraints; and expected runway under base, delayed-raise and no-raise cases. The board record should explain why the facility is reasonably expected to extend rather than compress runway, and should identify the month in which amortization begins relative to the Company’s cash-out date without the facility.

3 Interest

3.1 Base Rate and Margin

Each Advance will bear interest on its outstanding principal at a per annum rate equal to the sum of (a) [Term SOFR for a one-month tenor / Daily Simple SOFR / the Prime Rate] (the Base Rate), subject to the Floor, plus (b) [●]% (the Applicable Margin), [or, alternatively, a fixed rate of [●]% per annum]. [The Applicable Margin will decrease by [●]% upon the closing of a Qualified Equity Financing of at least $[●] / the Company’s achievement of [MILESTONE], and will not thereafter increase other than by application of the Default Rate.] The Base Rate resets on the first Business Day of each calendar month [or on each change in the Prime Rate].

3.2 Benchmark Mechanics and Replacement

If the Base Rate is a SOFR-based rate, the Loan Agreement will specify the administrator (currently the CME Group Benchmark Administration Limited for Term SOFR, and the Federal Reserve Bank of New York for SOFR), the tenor, a lookback of [2] U.S. Government Securities Business Days, the interest period and reset convention, rounding to [five] decimal places, the Business Day convention and any credit spread adjustment, which will be [zero / [●]%]. Upon a Benchmark Transition Event, the Base Rate will be replaced by (a) the successor rate recommended by the Relevant Governmental Body, plus the related spread adjustment, or, if none, (b) an alternative rate selected by Lender and the Company giving due consideration to then-prevailing market convention for similar U.S. dollar credit facilities (the Benchmark Replacement). Conforming changes will be limited to technical, administrative or operational matters. No Benchmark Replacement may be used to increase the all-in yield to Lender other than through the published spread adjustment, and the Company may object within [5] Business Days to any replacement selected under clause (b).

3.3 Floor

The Base Rate will not be less than [●]% per annum (the Floor). The Floor applies only to the Base Rate and not to the Applicable Margin.

3.4 Default Rate

Upon the occurrence and during the continuance of an Event of Default [and after written notice from Lender], the Obligations [that are overdue] will bear interest at the otherwise applicable rate plus [2.0 / 3.0 / 5.0]% per annum (the Default Rate). The Default Rate will not apply to a Default that has not matured into an Event of Default, will cease to apply when the Event of Default is cured or waived, and will not apply retroactively to periods before the notice.

3.5 Computation, Payment Dates and Late Charges

Interest will be computed on the basis of a [360 / 365]-day year for the actual number of days elapsed and will be payable monthly in arrears on the first Business Day of each calendar month and on the Maturity Date. Payments will be made by [ACH debit from the Company’s designated operating account / wire] before [noon Eastern Time] on the due date. [A late charge of [●]% of any payment more than [10] days overdue will apply, not to exceed $[●] per occurrence, and will not be charged for any period in which the Default Rate accrues on the same amount.] Payments will be made without setoff or counterclaim by the Company.

3.6 PIK Option

[The Company may elect, by notice at least [5] Business Days before any interest payment date during the Interest-Only Period, to pay up to [●]% per annum of the interest then due in kind by capitalizing it to the principal balance (PIK Interest). PIK Interest will bear interest at the same rate as the related Advance. No Final Payment, Prepayment Premium or Warrant Coverage will be calculated on capitalized PIK Interest. The election may be made for no more than [●] interest periods in the aggregate.] [No PIK option.]

3.7 Usury, Licensing and Rate Savings

The Loan Documents will contain a customary rate-savings clause providing that any amount that would exceed the maximum lawful rate will be applied to principal or refunded. The Company’s counsel will confirm, for the actual lender, borrower, governing law and payment stream, that the interest, fees, Final Payment, Prepayment Premium and Warrant together do not produce an unlawful rate and that Lender holds any license required under applicable commercial financing laws. No late fee, Default Rate, Final Payment, original issue discount, Warrant value or other charge may duplicate compensation for the same event.

4 Interest-Only Period, Amortization and Maturity

4.1 Interest-Only Period

From the Closing Date through [DATE / the last day of the [●]th full calendar month after the Closing Date] (the Interest-Only Period), the Company will pay interest only on outstanding Advances. [The Interest-Only Period applies to all tranches regardless of draw date, so that all Advances begin amortizing on the same date.] [Alternatively, each tranche will have its own Interest-Only Period of [●] months from its funding date.]

4.2 Extension of the Interest-Only Period

The Interest-Only Period will extend automatically by [6 / 12] months if, on or before [DATE], (a) the Company closes a Qualified Equity Financing of at least $[●] or (b) the Company achieves [REVENUE / ARR MILESTONE] measured on any month-end, and in either case no Event of Default has occurred and is continuing on the extension date. The extension is a right of the Company upon satisfaction of the stated conditions and is not subject to Lender discretion. [The Maturity Date will extend by the same period.] [The Maturity Date will not extend, and the number of amortization installments will be reduced correspondingly.]

4.3 Amortization

After the Interest-Only Period, the outstanding principal of each tranche will be repaid in [●] equal consecutive monthly installments of principal, together with accrued interest (straight-line amortization) [or in [●] equal consecutive monthly installments of principal and interest calculated at the then-applicable rate and recalculated upon each change in the Base Rate (mortgage-style amortization)], with all remaining principal, accrued interest, the Final Payment and other Obligations due on the Maturity Date. [No balloon payment will be required other than the Final Payment.] Installments will be applied to each tranche in the order the Company directs or, absent direction, pro rata.

4.4 Maturity Date

All Obligations will be due and payable in full on [DATE / the date that is [36 / 42 / 48 / 60] months after the Closing Date] (the Maturity Date), subject to any extension under Section 4.2 and to earlier acceleration under Section 15.

4.5 Illustrative Payment Schedule

The definitive payment schedule for each tranche and each possible draw date will be attached to the Loan Agreement and reconciled to the Schedule 4 model.

5 Fees

5.1 Closing Fee

The Company will pay a closing fee of [●]% of [the Tranche A commitment, payable on the Closing Date, and [●]% of each later tranche, payable only when and if that tranche is funded] [the Total Commitment, payable on the Closing Date] (the Closing Fee). Any good-faith deposit paid under Section 5.7 will be credited against the Closing Fee. The Closing Fee may be netted from the proceeds of the initial Advance and will be shown in the funds flow.

5.2 Unused Fee

[The Company will pay an unused fee of [●]% per annum on the daily undrawn amount of the [Revolving / Tranche B] commitment during its Availability Period, payable quarterly in arrears.] [No unused or non-utilization fee will apply to any tranche.]

5.3 Final Payment

On the earliest of the Maturity Date, the date of any prepayment (as to the amount prepaid) and the date of acceleration, the Company will pay a fee equal to [●]% of [the aggregate original principal amount of Advances actually funded] (the Final Payment). The Final Payment will not be calculated on undrawn commitments, PIK Interest or capitalized interest, and will be payable pro rata upon any partial prepayment. [The Final Payment is not payable upon acceleration unless the Event of Default is a payment default or an insolvency default.]

5.4 Prepayment Premium

A prepayment premium calculated on the principal amount prepaid will apply to any voluntary or mandatory prepayment (other than scheduled amortization) as follows (the Prepayment Premium):

No Prepayment Premium will apply to a prepayment (a) funded with the proceeds of a Qualified Equity Financing [or subject to a premium equal to [50]% of the otherwise applicable percentage]; (b) made in connection with a refinancing provided by Lender or its Affiliate; (c) made in connection with a Change of Control in which Lender declined an offer to continue the facility on substantially the same terms with the acquirer; (d) required by illegality, increased cost or tax gross-up provisions; (e) made within [90] days before the Maturity Date; or (f) following acceleration caused by an Event of Default other than a payment or insolvency default.

5.5 Legal Fees, Diligence Fee and Other Expenses

The Company will reimburse Lender’s reasonable and documented out-of-pocket fees and expenses of outside counsel, lien searches, filings and third-party diligence incurred in connection with the Closing, not to exceed $[●] in the aggregate (the Legal Fee Cap) without the Company’s prior written consent, and not to exceed $[●] for each later tranche. [The Company will pay a diligence fee of $[●], credited against the Closing Fee.] Lender’s internal costs, travel and allocated overhead are not reimbursable. Fees for post-closing amendments, waivers and consents requested by the Company will be reasonable and documented and will not exceed $[●] per request absent an Event of Default. No collateral monitoring, servicing or administration fee will apply. All fees payable to Lender will be stated in this Term Sheet or in a fee letter delivered to the Company’s board before Closing.

5.6 Success Fee

[No success fee will apply.] [Alternatively: Upon a Liquidity Event occurring on or before the [●] anniversary of the Closing Date, the Company will pay Lender a fee equal to [●]% of [the Total Commitment / funded Advances] (the Success Fee), in lieu of any Warrant.]

5.7 Good-Faith Deposit

Upon acceptance of this Term Sheet the Company will pay a deposit of $[●] (the Deposit) to be applied to Lender’s documented expenses under Section 5.5 and then to the Closing Fee. The unapplied balance will be refunded within [5] Business Days if (a) the Closing does not occur for any reason other than the Company’s breach of the Binding Provisions, (b) Lender fails to deliver a draft Loan Agreement by the date in Section 19 or (c) Lender proposes terms materially less favorable to the Company than this Term Sheet. [Any diligence fee under Section 5.5 is nonrefundable.]

5.8 Fee Summary and Anti-Duplication

No fee not listed in this table may be charged. No fee is earned before the event stated for it, and no fee may compensate Lender twice for the same event.

6 Prepayment

6.1 Voluntary Prepayment

The Company may prepay the Advances in whole or in part at any time on [5 / 10] Business Days’ prior written notice, in minimum amounts of $[●] and integral multiples of $[●], together with accrued interest on the amount prepaid, the applicable Prepayment Premium and the pro rata Final Payment. A notice of prepayment may be conditioned on the closing of a financing, refinancing or sale and may be revoked if that transaction does not close. Partial prepayments will be applied to scheduled installments [in the order the Company directs / in inverse order of maturity].

6.2 Mandatory Prepayment

The Company will prepay the Obligations, together with the Prepayment Premium and the Final Payment, (a) in full upon a Change of Control, [unless the acquirer assumes the Obligations with Lender’s consent, not to be unreasonably withheld, or Lender declines an offer to continue the facility under Section 5.4]; (b) in the amount of Net Cash Proceeds of any Disposition (other than a Permitted Transfer) exceeding $[●] in a single transaction or $[●] in any fiscal year, unless reinvested in assets useful in the business within [180 / 365] days; and (c) in the amount of insurance or condemnation proceeds exceeding $[●] not applied to repair or replacement within [180] days. No mandatory prepayment will be required from the proceeds of any equity issuance, Subordinated Debt, Permitted Indebtedness or excess cash flow.

6.3 Make-Whole

[No make-whole amount will apply.] [Alternatively: If Lender requires a make-whole, it will be limited to interest at the contract rate (excluding the Default Rate) that would have accrued through the [12]-month anniversary of the Closing Date, discounted to present value at the Treasury rate for a comparable maturity plus [50] basis points, will apply only to prepayments during the first year, and will replace, not supplement, the Prepayment Premium for that period.]

6.4 Application of Payments

Before an Event of Default, payments will be applied as directed by the Company, or absent direction, first to fees and expenses then due, then to accrued interest, then to principal in the order of scheduled installments. After an Event of Default, Lender may apply payments and proceeds of Collateral in the order the Loan Agreement provides. Lender’s right of setoff will arise only after an Event of Default.

7 Use of Proceeds and Prohibited Uses

Proceeds of the Advances may be used for working capital and general corporate purposes, including [approved capital expenditures consistent with the board-approved budget], [the acquisition described in Schedule 2], and transaction fees and expenses. Pending use, proceeds may be held in Permitted Investments. Proceeds may not be used (a) to pay dividends or distributions or to redeem or repurchase equity other than Permitted Distributions; (b) to repay Subordinated Debt or any Indebtedness owed to an Affiliate, officer, director or stockholder; (c) to make Investments other than Permitted Investments; (d) to purchase or carry margin stock; (e) for the benefit of any sanctioned Person or in violation of anti-corruption or anti-money-laundering laws; or (f) to fund a non-Guarantor foreign subsidiary beyond the intercompany basket in Section 13.5.

8 Collateral and Security

8.1 Grant and Priority

The Obligations will be secured by a first-priority perfected security interest, subject only to Permitted Liens, in all present and after-acquired personal property of each Loan Party, including accounts, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, letter-of-credit rights, commercial tort claims specifically described in a written notice to Lender and exceeding $[●], general intangibles (subject to Section 8.3 as to Intellectual Property), books and records, and all proceeds of the foregoing, but excluding Excluded Assets (collectively, the Collateral). No mortgage or leasehold mortgage will be required. The collateral description in the UCC financing statement will be conformed to the security agreement and will expressly exclude Excluded Assets.

8.2 Excluded Assets

8.3 Intellectual Property Structure

The parties will select one of the following structures for the Company’s patents, patent applications, trademarks, service marks, trade names, domain names, copyrights, software, source code, trade secrets, know-how and licenses (collectively, Intellectual Property or IP):

Option A — Current IP lien. Intellectual Property is Collateral. Lender will perfect by UCC filing and will record short-form notices against registered patents, trademarks and copyrights with the United States Patent and Trademark Office and United States Copyright Office. Foreign recordations will be limited to [JURISDICTIONS] at a cost not exceeding $[●]. The Company retains the right to grant non-exclusive licenses in the ordinary course, to grant exclusive licenses limited by field or territory in the ordinary course [with notice], to abandon or allow to lapse IP that is no longer useful in the Company’s reasonable business judgment, and to complete Permitted Transfers of IP.

Option B — Negative pledge. Intellectual Property is an Excluded Asset. The Company agrees not to grant a Lien on, or transfer, any Intellectual Property other than Permitted Liens, Permitted Transfers and licenses in the ordinary course, and agrees that the accounts, royalties and other proceeds of Intellectual Property are Collateral (the IP Negative Pledge). The firm’s negative pledge form (EF-102) carries the operative terms.

Option C — Springing lien. Intellectual Property is an Excluded Asset until the occurrence of a Springing Lien Trigger, at which time a security interest in Intellectual Property automatically attaches and Lender may file the pre-authorized financing statement amendment and IP security agreement held under the Loan Agreement. A Springing Lien Trigger is limited to [(a) an Event of Default that has continued beyond any applicable cure period and as to which Lender has delivered written notice; (b) Unrestricted Cash falling below $[●] for [●] consecutive Business Days; or (c) the Company’s failure to close a Qualified Equity Financing of at least $[●] by [DATE]]. Lender will give the Company written notice of any Springing Lien Trigger.

8.4 Deposit Accounts and Control Agreements

Each Loan Party will maintain its deposit, securities and commodities accounts [with Lender / with Lender and with other institutions that have executed Control Agreements]. The following are Excluded Accounts and will not require a Control Agreement: payroll, payroll tax and withholding accounts; employee benefit and health accounts; trust, escrow, fiduciary and customer-funds accounts; zero-balance disbursement accounts; petty cash and local operating accounts with balances not exceeding $[●] individually and $[●] in the aggregate; and accounts of non-Guarantor foreign subsidiaries. Each Control Agreement will be springing, permitting Lender to deliver a notice of exclusive control only after an Event of Default has occurred and is continuing. Control Agreements for accounts existing at Closing will be delivered within [30 / 60] days after the Closing Date as a post-closing covenant, and for new accounts within [30] days after opening. [If Lender is a bank: the Company will maintain not less than [●]% of its consolidated U.S. cash, cash equivalents and Permitted Investments in accounts with Lender, excluding Excluded Accounts, with a [60]-day transition period after Closing and a right to hold amounts exceeding deposit-insurance limits in insured cash sweep or money-market products.]

8.5 Subsidiary Guarantees, Equity Pledges and Foreign Subsidiaries

Each domestic subsidiary that is not an Excluded Subsidiary will become a Guarantor and grant a lien on its assets within [30] days after formation or acquisition. The Company will pledge 100% of the equity interests of each domestic subsidiary and [65% of the voting and 100% of the non-voting equity interests of each first-tier foreign subsidiary that is a controlled foreign corporation (CFC)] [no equity of any foreign subsidiary that is not a Material Foreign Subsidiary]. No foreign subsidiary will guarantee the Obligations or grant any Lien unless it is a Material Foreign Subsidiary, and no foreign-law security or pledge documents will be required [other than for [JURISDICTION], at a cost not exceeding $[●]]. The Company may make intercompany Investments in non-Guarantor foreign subsidiaries in the ordinary course for payroll and operating expenses not exceeding $[●] in any fiscal year (Section 13.5).

8.6 Landlord, Bailee and Collateral Access Agreements

Lender may request a landlord waiver or collateral access agreement for any leased premises at which Collateral (excluding Intellectual Property, books and records and electronic data) with a book value exceeding $[●] is located, and a bailee letter from any third-party warehouse, contract manufacturer or logistics provider holding inventory or equipment exceeding $[●]. The Company will use commercially reasonable efforts to obtain them; failure to obtain a waiver or letter from a third party is not a Default, is not a Closing condition and [in a revolving facility] will result only in a reserve. No agreement will be required from cloud hosting, software-as-a-service or data-center providers, and no source code escrow will be required.

8.7 Existing Liens, Subordination and Intercreditor Matters

Closing is conditioned on the release, payoff, subordination or permitted-lien treatment of each existing Lien and debt obligation listed on Schedule 1. Any convertible promissory notes will be subordinated under a subordination agreement in a form consistent with the firm’s subordination form (EF-078) permitting conversion to equity and prohibiting cash payments other than as specified. SAFEs and other convertible equity instruments are not Indebtedness and require no subordination, but each will be reviewed for any lien, negative pledge or payment right. Equipment lessors and purchase-money lenders will be Permitted Lien holders limited to the financed equipment. Lender agrees to negotiate in good faith a customary intercreditor agreement with any future provider of a Permitted receivables or working-capital facility of up to $[●]. No lien priority will be assumed from a contract label; counsel must confirm filing, possession, control, federal recording and choice-of-law requirements for each existing interest.

8.8 Insurance

The Loan Parties will maintain property and casualty insurance naming Lender as lender’s loss payee, commercial general liability insurance naming Lender as additional insured, and [cyber liability insurance of at least $[●]], each with at least [30] days’ notice of cancellation ([10] days for nonpayment). Directors’ and officers’ insurance will be maintained but will not name Lender. [No key-person life insurance will be required.] Coverage amounts will be consistent with the Company’s existing program as reviewed by its broker, and the Company will not be required to purchase coverage types it does not already carry other than the loss payee and additional insured endorsements.

9 Warrant

9.1 Coverage

At Closing, the Company will issue to Lender [or its designated Affiliate] a warrant (the Warrant) to purchase that number of Warrant Shares equal to (a) [●]% (the Warrant Coverage) multiplied by [the Tranche A commitment / the Total Commitment / the aggregate principal amount of Advances actually funded], divided by (b) the Exercise Price, rounded down to the nearest whole share. [Additional Warrant Coverage of [●]% of each later tranche will be issued only upon and in proportion to the funding of that tranche.] The Warrant Coverage expressed in dollars is $[●], which at the Exercise Price in Section 9.3 equals [●] Warrant Shares, or approximately [●]% of the Company’s fully diluted capitalization as of the Closing Date.

9.2 Class of Security

The Warrant will be exercisable for [shares of the Company’s [SERIES] Preferred Stock, being the most senior series outstanding on the Closing Date] [shares of Common Stock] [shares of the series of preferred stock issued in the Company’s next bona fide equity financing, or, if no such financing closes by [DATE], shares of [SERIES] Preferred Stock] (the Warrant Shares).

9.3 Exercise Price

The exercise price per Warrant Share will be $[●] (the Exercise Price), equal to [the price per share paid in the Company’s most recent preferred stock financing] [the lower of (i) that price and (ii) the price per share in the first bona fide preferred stock financing that closes within [12] months after the Closing Date] [the fair market value of the Common Stock as determined in the Company’s most recent independent valuation under Internal Revenue Code Section 409A].

9.4 Term and Exercise

The Warrant will be exercisable in whole or in part for [7 / 10] years from issuance [or, if earlier, the [3]rd anniversary of the Company’s initial public offering]. The holder may exercise for cash or on a net (cashless) basis by surrendering Warrant Shares with a fair market value equal to the aggregate Exercise Price, with fair market value determined by reference to the public trading price if the Warrant Shares are listed, the per-share consideration in a Liquidity Event, or otherwise the price per share in the Company’s most recent bona fide equity financing or the good-faith determination of the board. The Warrant will be deemed automatically net exercised immediately before expiration or a Liquidity Event if it is then in the money, and will expire without payment if it is out of the money.

9.5 Adjustments and Anti-Dilution

The number of Warrant Shares and the Exercise Price will be adjusted proportionately for stock splits, stock dividends, combinations, reclassifications and similar recapitalizations. If the Warrant Shares are preferred stock, the holder will receive the benefit of the price-based anti-dilution adjustment applicable to that series under the charter only upon exercise, as a holder of that series, and the Warrant itself will contain no separate price-based anti-dilution protection. If the preferred series is converted or redeemed before exercise, the Warrant will become exercisable for the Common Stock or other consideration into which the Warrant Shares would have been converted.

9.6 Registration, Information and Transfer Rights

The holder of the Warrant Shares will have piggyback registration rights on the same terms, and subject to the same cutbacks, as the holders of registrable securities under the Company’s investors’ rights agreement, implemented by [a joinder limited to the piggyback provisions / a separate side letter], and no demand or shelf registration rights. For so long as the Warrant or Warrant Shares are outstanding, the holder will receive the annual and quarterly financial statements delivered under Section 11 and no other information rights, and all information rights terminate upon an initial public offering. The Warrant may be transferred only to Affiliates of Lender, to assignees of the Advances permitted under Section 1.3 and, after an Event of Default, to any Person other than a Disqualified Lender. Warrant Shares will be subject to the Company’s right of first refusal, the co-sale and drag-along provisions of the Company’s investor agreements and a customary [180]-day lock-up in connection with an initial public offering, and the holder will agree to vote Warrant Shares in favor of any transaction approved under the drag-along provisions. The holder will not receive preemptive rights, a board seat or observer rights.

9.7 Put and Repurchase Rights

[The Warrant will contain no put, repurchase or cash settlement right.] [Alternatively, if Lender requires: Upon a Liquidity Event in which the Warrant is out of the money, the Company will pay the holder $[●], being [●]% of the Warrant Coverage, in full satisfaction of the Warrant.]

9.8 Treatment on Change of Control, Initial Public Offering and Dissolution

Upon a Change of Control in which the consideration is cash or marketable securities, the Warrant will be automatically net exercised immediately before the closing, and the holder will receive the consideration payable to holders of Warrant Shares [or, if the acquirer so elects and the Warrant is in the money, an assumed warrant for the acquirer’s securities with equivalent economic terms]. Upon an initial public offering, a Warrant for preferred stock will become exercisable for the Common Stock into which the preferred would convert. Upon a dissolution or liquidation, the Warrant will be treated as exercised if in the money. The Warrant Shares will be included in the fully diluted capitalization used to allocate consideration in any Liquidity Event, and the Warrant holder will receive no payment if the Warrant is out of the money.

9.9 Approvals, Preemptive Rights and Securities Compliance

The Company will obtain, before Closing: board approval of the Warrant and reservation of the Warrant Shares and any Common Stock issuable on conversion; any preferred class or series vote required under the charter’s protective provisions for the issuance (including any increase in authorized shares); a waiver of, or confirmation that the Warrant is an excluded issuance under, the preemptive or pro rata rights in the investors’ rights agreement; and any consent required under the right of first refusal and co-sale agreement or voting agreement. The Warrant will be issued in reliance on Rule 506(b) of Regulation D to an accredited investor, with a Form D filing and state notice filings as required, and will bear customary legends. Section 18 contains the approval matrix. The Company will not promise a class, price or share count that its charter, approvals, securities exemption or existing investor documents do not permit.

9.10 Tax and Accounting

The Advances and the Warrant will be treated as an investment unit for federal income tax purposes, and the parties will agree on the allocation of issue price between the Advances and the Warrant under Internal Revenue Code Section 1273(c)(2), which will create original issue discount on the Advances. The parties will file consistently with that allocation. The Company’s auditors will determine the balance sheet classification of the Warrant, and the Loan Documents will not condition any obligation on a particular accounting treatment. No provision of the Warrant will require cash settlement that could cause liability classification without the Company’s informed consent.

10 Financial Covenants

10.1 Covenant Package

The Company will select no more than [two] of the above. Financial covenants will be tested only at month-end or quarter-end as stated, on the basis of the financial statements delivered under Section 11, and will be certified in the Compliance Certificate.

10.2 Minimum Cash and Liquidity

The Loan Parties will maintain Unrestricted Cash in accounts subject to Control Agreements (or with Lender) of not less than [the greater of (a) $[●] and (b) [●] times the trailing three-month average monthly Net Cash Burn] [[●]% of the outstanding principal of the Advances], tested [on the last day of each month]. Liquidity will include Unrestricted Cash and Permitted Investments with maturities of [90] days or less, and [undrawn availability under any revolving commitment].

10.3 Minimum Revenue or ARR

Trailing [3 / 6]-month recognized revenue determined under GAAP [or ARR as defined in Schedule 5] measured on the last day of each [month / quarter] will be not less than the amounts stated in the covenant schedule to the Loan Agreement, which will be set at [●]% of the board-approved operating plan delivered to Lender before Closing. [No revenue covenant will apply during the first [●] months after the Closing Date.] The revenue covenant will cease to apply upon the closing of a Qualified Equity Financing of at least $[●] [or for so long as Remaining Months Liquidity exceeds [●] months].

10.4 Performance to Plan

[Alternatively to Section 10.3:] Cumulative revenue for each trailing [3 / 6]-month period will be not less than [●]% of the revenue in the board-approved plan for that period [and cumulative Net Cash Burn will not exceed [●]% of the plan burn for that period]. The plan will be reset annually to the board-approved operating plan delivered under Section 11, and the covenant will be mechanically reset at the same percentage of the new plan without Lender approval [or with Lender approval not to be unreasonably withheld, delayed or conditioned, and deemed given if Lender does not object within [15] Business Days after delivery].

10.5 Net Cash Burn and Burn Multiple

[Trailing [3]-month Net Cash Burn will not exceed $[●] [or [●]% of the plan burn for the period].] [The Burn Multiple, calculated as Net Cash Burn divided by Net New ARR for the trailing [6]-month period, will not exceed [●]x, tested quarterly.] Net Cash Burn excludes proceeds of equity, Subordinated Debt and Permitted Indebtedness, one-time transaction costs, and capital expenditures financed with Permitted Indebtedness, and includes operating cash flow and unfinanced capital expenditures.

10.6 Definitions and Calculation Conventions

Financial covenants will be calculated under GAAP applied consistently with the Company’s most recent annual financial statements, with GAAP frozen for covenant purposes so that later changes in accounting standards require a mutually agreed amendment. Acquired businesses will be included on a pro forma basis, foreign currency amounts will be converted at [the rate used in the Company’s financial statements], deferred revenue and extraordinary items will be treated as stated in Schedule 5, and the Company’s calculation in a Compliance Certificate will be final unless Lender objects in writing within [15] Business Days stating its reasons, with any dispute exceeding $[●] referred to an independent accounting firm whose determination is binding.

10.7 Equity Cure Rights

If the Company fails to comply with a financial covenant as of any test date, the Company may cure the failure by receiving, within [15 / 30] days after the earlier of delivery of the related Compliance Certificate and its due date, net cash proceeds of an issuance of equity or Subordinated Debt (an Equity Cure). Equity Cure proceeds will be added to Unrestricted Cash and Liquidity for the Minimum Cash and Remaining Months Liquidity covenants and will be deemed to reduce Net Cash Burn for the burn covenants as of the test date. The Company may exercise the Equity Cure not more than [2] times in any period of twelve consecutive months and not more than [4] times during the term, not in consecutive [months / quarters] for the same covenant, and only in the amount necessary to cure. No Default or Event of Default will exist, and Lender may not exercise remedies, during the Equity Cure period, and Equity Cure proceeds will not be applied as a mandatory prepayment.

10.8 Covenant Reset and Fall-Away

Upon the closing of a Qualified Equity Financing of at least $[●], the covenant levels in Sections 10.3 through 10.5 will be reset to [●]% of the board-approved plan delivered in connection with that financing. The revenue and performance covenants will cease to apply for any period during which Remaining Months Liquidity exceeds [●] months or Unrestricted Cash exceeds $[●]. [Alternatively, all financial covenants other than Minimum Cash will be springing and will apply only when Unrestricted Cash is less than $[●].]

11 Reporting Covenants

Reporting deadlines will match the Company’s actual closing calendar, and no officer will be required to certify compliance before reliable data exists. Board materials may be withheld to the extent necessary to preserve privilege, protect a conflict of interest or comply with law, and the Company may redact information concerning its negotiations with other financing sources.

12 Affirmative Covenants

The Loan Documents will contain affirmative covenants customary for facilities of this type, limited to the following and subject to the qualifications noted: (a) maintenance of existence, good standing and qualification where failure would reasonably be expected to have a Material Adverse Effect; (b) compliance with laws in all material respects, including anti-corruption, sanctions and anti-money-laundering laws; (c) payment of taxes when due, other than taxes contested in good faith with adequate reserves; (d) maintenance of insurance under Section 8.8; (e) maintenance of books and records and the inspection rights described in Section 11; (f) maintenance of property in good working order, ordinary wear excepted; (g) protection, maintenance and prosecution of registered Intellectual Property material to the business, except where abandonment is a reasonable business judgment; (h) notices under Section 11; (i) joinder of new domestic subsidiaries as Guarantors within [30] days after formation or acquisition; (j) maintenance of deposit accounts under Section 8.4; (k) use of proceeds under Section 7; (l) further assurances reasonably requested by Lender to perfect its liens, at the Company’s expense subject to Section 5.5; (m) delivery of beneficial ownership information required under applicable regulations; and (n) [participation in a management call with Lender [quarterly]].

13 Negative Covenants

The Loan Documents will restrict the Loan Parties as described in this Section 13, in each case subject to the permitted exceptions, baskets and ordinary-course carve-outs described below and defined in Schedule 5. Each basket amount is a negotiated figure that should be set by reference to the Company’s actual operating plan, not the lender’s template.

13.1 Indebtedness

No Loan Party will incur Indebtedness other than Permitted Indebtedness: (a) the Obligations; (b) trade payables and accrued expenses in the ordinary course; (c) purchase-money Indebtedness and capital lease obligations for equipment not exceeding $[●] outstanding at any time; (d) corporate credit card and procurement card programs not exceeding $[●]; (e) Subordinated Debt, including convertible promissory notes, subject to a subordination agreement reasonably acceptable to Lender [in an unlimited amount / not exceeding $[●]]; (f) intercompany Indebtedness among Loan Parties and Investments permitted under Section 13.5; (g) letters of credit and surety obligations supporting leases, utilities and workers’ compensation not exceeding $[●]; (h) insurance premium financing; (i) guaranties of Permitted Indebtedness; (j) Indebtedness refinancing Permitted Indebtedness on terms no less favorable in any material respect; (k) deferred compensation and earn-out obligations arising from Permitted Acquisitions; and (l) other unsecured Indebtedness not exceeding $[●] at any time. SAFEs and other convertible equity instruments without a repayment obligation are not Indebtedness.

13.2 Liens

No Loan Party will grant or suffer any Lien other than Permitted Liens: (a) Liens in favor of Lender; (b) purchase-money and capital lease Liens on the financed equipment securing Indebtedness permitted under Section 13.1(c); (c) Liens for taxes not yet delinquent or contested in good faith with adequate reserves; (d) statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen for amounts not overdue by more than [60] days or contested in good faith; (e) cash collateral and deposits securing Indebtedness permitted under Sections 13.1(d) and (g) not exceeding the amounts stated there; (f) deposits securing leases, utilities, workers’ compensation and similar obligations in the ordinary course; (g) non-exclusive licenses and other Permitted Transfers of Intellectual Property; (h) bankers’ Liens and rights of setoff of depository institutions arising by law; (i) judgment Liens that do not constitute an Event of Default; (j) Liens securing insurance premium financing; (k) Liens on Excluded Accounts in favor of the institution maintaining them; and (l) other Liens securing obligations not exceeding $[●] at any time. No Loan Party will agree with any other Person to a negative pledge or restriction on granting Liens to Lender, other than restrictions in leases, licenses and purchase-money documents as to the subject asset and customary restrictions in Permitted Indebtedness documents.

13.3 Dispositions

No Loan Party will sell, lease, license, transfer or otherwise dispose of any property other than Permitted Transfers: (a) sales of inventory in the ordinary course; (b) dispositions of worn-out, obsolete or surplus equipment; (c) non-exclusive licenses of Intellectual Property in the ordinary course; (d) exclusive licenses of Intellectual Property limited by field of use, territory or term in the ordinary course [with notice to Lender]; (e) use or transfer of cash and Permitted Investments in the ordinary course and as otherwise permitted; (f) abandonment or lapse of Intellectual Property that is no longer useful in the Company’s reasonable business judgment; (g) transfers among Loan Parties; (h) dispositions of equipment subject to Permitted Liens to the holder of the Lien; (i) Permitted Distributions and Permitted Investments; (j) leases or subleases of real property in the ordinary course; and (k) other dispositions not exceeding $[●] in any fiscal year.

13.4 Distributions and Equity Repurchases

No Loan Party will declare or pay any dividend or distribution or redeem, repurchase or retire any equity interest other than Permitted Distributions: (a) dividends payable solely in equity; (b) conversion of convertible securities into equity and cash in lieu of fractional shares; (c) repurchases of equity from current or former employees, directors and consultants under equity plans or restricted stock agreements upon termination of service, at the lower of cost and fair market value, not exceeding $[●] in any fiscal year, provided no Event of Default exists; (d) net settlement of equity awards for tax withholding not exceeding $[●] in any fiscal year; (e) distributions by subsidiaries to the Company or another Loan Party; and (f) [accruing, but not cash, dividends on preferred stock]. No redemption of preferred stock, including any redemption required by the charter, will be permitted while the Obligations are outstanding without Lender’s consent.

13.5 Investments and Acquisitions

No Loan Party will make any Investment other than Permitted Investments: (a) cash equivalents and marketable securities under an investment policy approved by the board [and reasonably acceptable to Lender]; (b) Investments in other Loan Parties; (c) Investments in non-Guarantor subsidiaries, including foreign subsidiaries, not exceeding $[●] in any fiscal year [plus amounts reimbursed under intercompany services agreements]; (d) loans and advances to employees for travel, relocation and similar purposes not exceeding $[●] outstanding; (e) notes receivable from employees in connection with equity purchases, to the extent permitted by law; (f) Investments consisting of deposits, prepayments and security deposits in the ordinary course; (g) Investments received in settlement of accounts or in bankruptcy of account debtors; (h) joint ventures and strategic Investments not exceeding $[●] in any fiscal year; (i) Permitted Acquisitions; and (j) other Investments not exceeding $[●] at any time. Permitted Acquisitions are acquisitions of businesses or assets in the same or a complementary line of business in which (i) total cash consideration (including assumed Indebtedness) does not exceed $[●] per transaction and $[●] in the aggregate, (ii) no Event of Default exists or would result, (iii) the Company is in pro forma compliance with the financial covenants, (iv) any acquired domestic subsidiary joins as a Guarantor, and (v) consideration paid in the Company’s equity is unlimited.

13.6 Fundamental Changes, Mergers and Change of Control

No Loan Party will merge or consolidate with any Person, liquidate or dissolve, or acquire all or substantially all of the assets or equity of any Person, other than (a) mergers among Loan Parties in which a Loan Party survives, (b) Permitted Acquisitions in which the Company or a Guarantor is the surviving entity, (c) dissolution of an inactive subsidiary whose assets are transferred to a Loan Party, and (d) any transaction in connection with which the Obligations are repaid in full at closing in accordance with Section 6.2. A Change of Control means (i) any Person or group (within the meaning of the Securities Exchange Act of 1934) other than the Company’s existing investors and their Affiliates acquiring beneficial ownership of more than [50]% of the voting power of the Company’s equity, excluding any acquisition in a bona fide equity financing approved by the board; (ii) a sale of all or substantially all of the assets of the Loan Parties taken as a whole; or (iii) the Company ceasing to own, directly or indirectly, all of the equity of any Guarantor other than through a Permitted Transfer. A change in the composition of the board, the departure of any founder or officer, or an initial public offering is not a Change of Control.

13.7 Affiliate Transactions

No Loan Party will enter into any transaction with an Affiliate other than on terms no less favorable than arm’s length, except (a) compensation, benefits, equity awards and indemnification arrangements for directors, officers, employees and consultants approved by the board or its compensation committee; (b) issuances of equity to investors and payment of customary investor expenses approved by the board; (c) transactions among Loan Parties; (d) Permitted Investments and Permitted Distributions; and (e) customary directors’ and officers’ indemnification and insurance.

13.8 Payments on Subordinated Debt

No Loan Party will make any payment of principal, interest, fees or other amounts on Subordinated Debt, or amend the terms of Subordinated Debt in a manner adverse to Lender, except as expressly permitted by the applicable subordination agreement, which will permit at least (a) conversion of Subordinated Debt into equity, (b) payment of accrued interest [in kind / in cash if no Default exists and the Company is in pro forma compliance with the financial covenants], and (c) repayment at or after the Maturity Date once the Obligations have been paid in full.

13.9 Changes in Business, Fiscal Year and Governing Documents

No Loan Party will (a) engage in any material line of business substantially different from the business conducted on the Closing Date and businesses reasonably related, complementary or ancillary to it; (b) change its fiscal year without [30] days’ prior notice [and Lender’s consent, not to be unreasonably withheld]; (c) amend its charter, bylaws or investor agreements in a manner that would materially and adversely affect Lender’s rights under the Loan Documents or the Warrant, create a cash redemption or dividend obligation, or restrict the grant of Liens to Lender, it being understood that amendments in connection with a bona fide equity financing are permitted; or (d) change its legal name, jurisdiction of organization, organizational form or chief executive office without [10 / 30] days’ prior written notice to Lender.

13.10 Deposit Accounts, Subsidiaries and Collateral Locations

No Loan Party will (a) open a deposit or securities account other than an Excluded Account without notice to Lender and delivery of a Control Agreement within [30] days after opening; (b) form or acquire a subsidiary without causing it to comply with Section 8.5 within [30] days; or (c) move tangible Collateral with a value exceeding $[●] to a location not disclosed to Lender without [10] Business Days’ notice.

13.11 Fundraising and Sale Process Protection

The Company may solicit, negotiate and close equity financings, convertible equity instruments and Subordinated Debt, and may evaluate and negotiate strategic transactions, without Lender’s consent, subject only to the Lien, payment and Change of Control provisions of this Term Sheet. Lender will have no right of first refusal, right of first offer, most-favored-lender right or matching right with respect to any future debt or equity financing [other than a right to receive [10] Business Days’ notice of, and to submit a proposal for, any refinancing of the Obligations, without any obligation of the Company to accept it]. No information or notice covenant will require the Company to disclose the terms or existence of financing negotiations before signing, to waive privilege, to breach a confidentiality obligation or to violate securities laws.

13.12 Negative Covenant Basket Summary

14 Events of Default

14.1 Enumerated Events of Default

Cross-default thresholds, grace periods and acceleration mechanics will be express in the Loan Agreement and will not be supplemented by any general “insecurity” clause.

14.2 Material Adverse Change and Investor-Support Clauses

[No Material Adverse Change Event of Default and no investor-abandonment or investor-support Event of Default will be included.]

[Alternatively, if Lender insists on a Material Adverse Change default, it will be limited to: (a) a material adverse change in the business, operations or financial condition of the Loan Parties taken as a whole, excluding changes resulting from general economic, industry or capital-market conditions, changes in law or GAAP, the Company’s failure in itself to meet projections, the announcement or performance of the Loan Documents, or actions required by the Loan Documents; or (b) a material impairment of the perfection or priority of Lender’s Liens caused by a Loan Party. Any clause referring to a “material impairment of the prospect of repayment” or to Lender’s determination in its discretion will be deleted. Lender will deliver written notice specifying the facts constituting the asserted change, and no Event of Default will exist for [30] days after the notice during which the Company may demonstrate that no such change has occurred or may close an equity financing, with no Default Rate accruing during that period.]

[Alternatively, if Lender insists on an investor-support provision, it will be stated as an objective trigger: an Event of Default occurs only if (a) the board has approved a plan of dissolution or an assignment for the benefit of creditors, or (b) Unrestricted Cash is less than $[●] on any test date. No provision will permit Lender to declare a default based on its belief, determination or communication with investors about their intentions.]

14.3 Key-Person Event

[No key-person Event of Default will be included.] [Alternatively: If [NAME] ceases to serve as the Company’s [TITLE] for any reason and the board has not appointed a successor within [90 / 120] days, Lender may terminate any undrawn commitment, and no other remedy will apply. A successor appointed by the board after a good-faith search is deemed acceptable to Lender.]

14.4 Cross-Default Thresholds

Cross-default will be limited to the acceleration of other Indebtedness (not a mere default or event of default) exceeding the greater of $[●] and [5]% of the Total Commitment in the aggregate, and will exclude Subordinated Debt (which is addressed by the subordination agreement), Indebtedness being contested in good faith, and nonmonetary defaults under equipment financings and leases. No cross-default to material contracts, leases or licenses will be included; termination of a material contract will be relevant only to the extent it results in a breach of a financial covenant.

14.5 Going-Concern Qualification

[The delivery of annual financial statements accompanied by an audit opinion containing a going-concern explanatory paragraph will not constitute an Event of Default.] [Alternatively: an Event of Default will occur only if the going-concern qualification arises other than from (a) the Maturity Date or any scheduled amortization occurring within twelve months after the opinion date or (b) the Company’s projected cash runway being less than twelve months, which is addressed by the Minimum Cash covenant.]

14.6 ERISA and Other Statutory Defaults

[Because no Loan Party sponsors a defined benefit pension plan, no ERISA Event of Default will be included.] [Alternatively: an ERISA event with respect to a Title IV plan resulting in liability exceeding $[●] will be an Event of Default.] A breach of sanctions, anti-corruption or anti-money-laundering representations or covenants will be an Event of Default only if material and not cured within [30] days after notice to the extent curable. A Loan Party becoming required to register as an investment company will be an Event of Default.

14.7 Notice, Knowledge and Cure Mechanics

Cure periods for covenant defaults will run from [the earlier of a responsible officer’s knowledge of the breach and] Lender’s written notice of the breach. Lender will deliver written notice of any Default before exercising remedies, other than upon an insolvency Event of Default. The conditions to each Advance will be tied to the absence of an Event of Default (Section 16.2) rather than to the absence of any Default, so that an unmatured technical breach within its cure period does not block a committed funding.

15 Remedies

15.1 Acceleration and Enforcement

Upon the occurrence and during the continuance of an Event of Default, Lender may, by written notice to the Company (and automatically upon an insolvency Event of Default), terminate the commitments, declare the Obligations immediately due and payable, apply the Default Rate under Section 3.4 and exercise the rights of a secured party under the Uniform Commercial Code and the Loan Documents, including collection of accounts and disposition of Collateral. The Final Payment and Prepayment Premium will be payable upon acceleration only as stated in Sections 5.3 and 5.4.

15.2 Cash Dominion, Sweep and Setoff

Lender may deliver a notice of exclusive control under any Control Agreement, sweep collections and exercise setoff only after an Event of Default has occurred and is continuing and Lender has delivered written notice of acceleration or its intent to exercise remedies. [For [●] Business Days after any such notice, the Company may continue to pay payroll, payroll taxes and benefits then due from the swept accounts.]

15.3 Notice, Standstill and Commercially Reasonable Disposition

Lender will give the Company at least [10 days / 15 Business Days] notice of any public or private disposition of Collateral, which the parties agree is commercially reasonable notice. Any disposition will comply with Section 9-610 of the Uniform Commercial Code and applicable law. [If the Event of Default is not a payment or insolvency default and the Collateral to be disposed of consists principally of Intellectual Property, Lender will not dispose of it for [60] days after acceleration while the Company conducts a sale or refinancing process in good faith, provided the Company shares the process information with Lender.] Lender may credit bid at any disposition. The Company’s obligations remain subject to applicable law, any intercreditor arrangements and any required regulatory approvals.

15.4 Intellectual Property, Source Code and Data in Enforcement

The Loan Documents will grant Lender, effective only after an Event of Default and acceleration, a non-exclusive license to use Intellectual Property solely to the extent necessary to complete, market and dispose of Collateral, which license is not a general license and terminates upon payment in full. No source code escrow, deposit or disclosure obligation will apply before an Event of Default. Lender’s handling of personal information in enforcement will comply with applicable privacy and data-protection law and the Company’s customer contracts, and Lender will coordinate with the Company to preserve customer continuity and the value of the Collateral. Lender will not dispose of Intellectual Property to a Disqualified Lender or in a manner that breaches an inbound license disclosed to Lender.

15.5 Protective Advances, Expenses, Receiver and Power of Attorney

After an Event of Default, Lender may make protective advances to preserve Collateral, which will be added to the Obligations and bear interest at the Default Rate, and the Company will reimburse Lender’s reasonable and documented enforcement costs. [No consent to the appointment of a receiver will be included.] [Alternatively: the Company consents to appointment of a receiver only after a judgment in Lender’s favor or an insolvency Event of Default.] Any power of attorney granted to Lender will be exercisable only after an Event of Default and only for the purposes of perfecting Liens and disposing of Collateral.

15.6 Amendments, Waivers and Required Lenders

Amendments and waivers of the Loan Documents require the written consent of the Company and Lender [or, if more than one lender, lenders holding more than 50% of the commitments and outstanding Advances (the Required Lenders)]. Changes to the interest rate, fees, maturity, amortization, commitment amount or the release of all or substantially all Collateral require the consent of each lender directly affected. If any lender refuses to consent to an amendment approved by the Required Lenders and the Company, the Company may replace that lender at par without Prepayment Premium. No waiver will be effective unless in writing, and no course of dealing or delay will operate as a waiver. Amendment and waiver fees are limited as stated in Section 5.5.

16 Conditions Precedent

16.1 Conditions to Closing and the Initial Advance

16.2 Conditions to Each Subsequent Advance

Each Advance after the initial Advance is subject to: (a) delivery of a Borrowing Request; (b) no Event of Default [and no payment Default] having occurred and continuing on the funding date or resulting from the Advance; (c) the representations in the Loan Documents being true in all material respects on the funding date, with updates to the disclosure schedules permitted for matters that do not individually or in the aggregate constitute a Material Adverse Effect; (d) satisfaction of the Milestone applicable to the tranche under Schedule 2, or its deemed satisfaction under Section 2.3; (e) the funding date falling within the Availability Period; (f) payment of any Closing Fee applicable to the tranche; and (g) [issuance of any additional Warrant applicable to the tranche]. No condition will require the absence of a Material Adverse Change, Lender’s satisfaction with the Company’s performance or results, or the Company’s continued compliance with projections.

16.3 Conditions Subsequent

16.4 Waiver Authority

Each condition in Sections 16.1 and 16.2 may be waived only in a writing signed by Lender, and any condition in the Company’s favor only in a writing signed by the Company. Waiver of a condition for one Advance is not a waiver for any other Advance. Funding of an Advance with knowledge of an unsatisfied condition constitutes a waiver of that condition for that Advance only.

17 Representations and Warranties

The Loan Agreement will contain representations and warranties by the Loan Parties, made on the Closing Date and brought down on each funding date, limited to the following subjects and qualified as noted: (a) organization, existence, good standing and qualification, the last qualified by Material Adverse Effect; (b) power, authority, due authorization, execution and enforceability, subject to customary bankruptcy and equitable exceptions; (c) no conflict with law, charter documents or material agreements, and all required consents obtained; (d) capitalization as set forth in the capitalization table delivered to Lender, and due authorization and reservation of the Warrant Shares; (e) subsidiaries and equity interests as listed in the perfection certificate; (f) title to Collateral free of Liens other than Permitted Liens, and the creation, perfection and priority of Lender’s Liens upon the filings and actions described in the Loan Documents; (g) accuracy in all material respects of the perfection certificate; (h) financial statements fairly presenting the Company’s financial condition in all material respects, with unaudited statements subject to normal year-end adjustments and the absence of footnotes; (i) absence of undisclosed liabilities required under GAAP to be reflected, other than liabilities incurred in the ordinary course since the most recent statements; (j) no Material Adverse Effect since [DATE], made as of the Closing Date only [and brought down on each funding date only as to the Material Adverse Effect definition without reference to projections]; (k) litigation, other than matters that are not reasonably expected to result in liability exceeding $[●] or injunctive relief against the business; (l) compliance with laws in all material respects, including anti-corruption, sanctions, anti-money-laundering and data-protection laws; (m) taxes paid, other than taxes contested in good faith with adequate reserves; (n) ownership of or valid rights to use Intellectual Property material to the business, no written claim of infringement received other than as disclosed, invention assignment agreements from founders, employees and contractors who contributed to material Intellectual Property, and use of open-source software in a manner that does not, to the Company’s knowledge, require disclosure or licensing of proprietary source code; (o) material contracts in full force and no material default by the Company; (p) insurance in force; (q) labor and employment matters in all material respects; (r) no Title IV employee benefit plans; (s) no material environmental liability; (t) no margin stock, and the Company is not an investment company; (u) solvency of the Loan Parties taken as a whole on the Closing Date after giving effect to the Advances; (v) accuracy of written information furnished to Lender taken as a whole in all material respects, with projections representing good-faith estimates based on assumptions believed reasonable when made and not a guarantee of results; (w) deposit accounts, Collateral locations and names used in the last five years as disclosed; (x) use of proceeds in compliance with Section 7; and (y) accuracy of the beneficial ownership certification.

18 Required Board and Investor Approvals

18.1 Board Approval

The Company’s board will approve the Loan Documents, the grant of Liens, the issuance of the Warrant, the reservation of the Warrant Shares (and any Common Stock issuable on conversion), the officers’ authority and the determination that the facility is in the best interests of the Company and its stockholders. The approval record (EF-103) should reflect the analysis required by Section 2.6 and the Schedule 4 model. If any director is affiliated with Lender or with an investor in Lender, the interest will be disclosed and the approval obtained from disinterested directors.

18.2 Charter Protective Provisions

The Company will review the protective provisions of its certificate of incorporation (or equivalent) for any class or series vote required to (a) incur Indebtedness exceeding a stated amount or outside the approved budget, (b) grant Liens on all or substantially all assets, (c) issue securities senior to or on parity with any series of preferred stock, or increase the authorized shares of any class or series, which may be implicated by a Warrant for preferred stock, (d) redeem or repurchase equity, or (e) change the nature of the business. The required consent of [the holders of a majority of the outstanding preferred stock / each affected series] will be obtained in writing before Closing.

18.3 Investors’ Rights Agreement and Other Investor Agreements

The Company will review its investors’ rights agreement, voting agreement, right of first refusal and co-sale agreement and any side letters for: (a) covenants requiring approval of the preferred directors or Major Investors for Indebtedness above a threshold, grants of exclusive licenses, or transactions outside the budget; (b) preemptive or right-of-first-offer provisions applicable to “New Securities” and whether the definition excludes securities issued to lenders or equipment lessors in a debt financing approved by the board (if excluded, a notice but no waiver is required; if not excluded, a waiver by the holders of the requisite percentage of registrable securities or Major Investors is required); (c) whether Warrant Shares must be subject to the right of first refusal and co-sale and drag-along provisions by joinder; (d) most-favored-nation provisions in side letters that may be triggered by the Warrant’s terms; and (e) registration rights provisions that must be amended or joined to grant the piggyback rights in Section 9.6.

18.4 Stockholder Approval and Statutory Requirements

Stockholder approval will be required if the charter must be amended to authorize or reserve shares for the Warrant, and may be required under the Company’s governing documents or applicable corporate statute for the grant of a security interest in all or substantially all assets. Company counsel will confirm whether the Company’s jurisdiction permits the board alone to authorize a mortgage or pledge of corporate assets, and whether any operating agreement or stockholders’ agreement imposes a member or stockholder vote on borrowing above a threshold.

18.5 Approval Matrix

19 Definitive Documentation

The definitive documents (the Loan Documents) are expected to include the Loan Agreement (EF-098), a promissory note if requested, a guaranty and joinder for each Guarantor (EF-077), a security agreement if separate (EF-076), an equity pledge (EF-079), the perfection certificate (EF-099), Control Agreements, the IP negative pledge or IP security agreement (EF-102 or EF-080), the Warrant, the subordination agreements (EF-078), the form of Borrowing Request (EF-100), the form of Compliance Certificate (EF-101), the board and investor approval record (EF-103) and the closing checklist and funds flow (EF-104). Lender will deliver a first draft of the Loan Agreement and Warrant within [5 / 10] Business Days after acceptance of this Term Sheet, and the parties will target a Closing Date of [DATE]. The Loan Documents will reflect the terms of this Term Sheet and otherwise contain only provisions that are consistent with this Term Sheet, customary for facilities of this type for similarly situated venture-backed borrowers and subject to the Company’s reasonable comments. Inconsistent terms will be resolved in the definitive agreements, not by treating this Term Sheet as a hidden amendment to them.

20 Expenses and Indemnification

20.1 Expenses

The Company will reimburse Lender’s reasonable and documented out-of-pocket legal, search, filing and third-party diligence expenses incurred in connection with this Term Sheet and the Loan Documents, subject to the Legal Fee Cap, [whether or not the Closing occurs] [only if the Closing occurs or if the Closing fails to occur because of the Company’s breach of the Binding Provisions]. No expense reimbursement is owed if Lender withdraws, fails to deliver a draft Loan Agreement by the date in Section 19, fails to obtain credit approval, or proposes terms materially less favorable to the Company than this Term Sheet. Lender will provide invoices with sufficient detail to evaluate the cap without disclosing privileged advice. This Section 20.1 is binding.

20.2 Indemnification

The Loan Documents will provide that the Company indemnifies Lender, its Affiliates and their respective directors, officers, employees and agents against losses, claims and expenses arising from third-party claims relating to the Loan Documents, the use of proceeds or the Collateral, excluding losses resulting from the indemnitee’s gross negligence, willful misconduct or bad faith, material breach of the Loan Documents, or disputes solely among lenders. Neither party will be liable to the other for consequential, special or punitive damages except to the extent included in a third-party claim. This Term Sheet itself imposes no indemnification obligation.

20.3 Taxes, Increased Costs and Yield Protection

Payments will be made free of withholding taxes, with a gross-up for taxes other than Excluded Taxes (taxes on Lender’s overall net income, taxes imposed because of Lender’s failure to deliver required tax forms, and taxes under the Foreign Account Tax Compliance Act). [If Lender is a bank: increased-cost and capital-adequacy provisions will apply only to changes in law after the Closing Date, only if Lender is seeking compensation from similarly situated borrowers generally, and only for costs incurred within [180] days before the claim, and the Company may prepay the affected Advances without Prepayment Premium.] [If Lender is not a bank: no increased-cost, capital-adequacy or yield-protection provisions will apply.]

21 Confidentiality

Each party will keep this Term Sheet, its terms and the nonpublic information of the other party confidential, except for disclosure (a) to its Affiliates, directors, officers, employees, advisers, auditors, financing sources and existing and prospective investors, in each case who are bound by confidentiality obligations; (b) by Lender, to prospective participants and assignees permitted under Section 1.3 that have agreed in writing to confidentiality; (c) to regulators and as required by law, subpoena or legal process, with prompt notice to the other party where lawful; and (d) in connection with the enforcement of rights under the Binding Provisions or the Loan Documents. Lender will not use the Company’s or any founder’s name or logo in marketing, announcements, tombstones or portfolio listings without the Company’s prior written consent. The Company may disclose this Term Sheet to other prospective lenders only after the Exclusivity Period ends. Confidentiality obligations survive for [2] years after the expiration or termination of this Term Sheet. This Section 21 is binding.

22 Exclusivity, No-Shop and Expense Reimbursement

22.1 No-Shop

For [●] days after the Company’s acceptance of this Term Sheet (the Exclusivity Period), the Company will not solicit, negotiate or accept a proposal from any other lender for a senior secured term loan facility of the type described in this Term Sheet. The Exclusivity Period does not restrict (a) equity financings, SAFEs, convertible notes or other convertible equity instruments; (b) equipment leases and financings not exceeding $[●]; (c) corporate card and payment-processing arrangements; (d) amendments, extensions or payoffs of existing financing; (e) strategic transactions, acquisitions or a sale of the Company; or (f) responding to an unsolicited proposal by stating that the Company is subject to exclusivity.

22.2 Termination of Exclusivity

The Exclusivity Period ends automatically, without notice, if (a) Lender withdraws or indicates that it will not proceed; (b) Lender proposes terms that are materially less favorable to the Company than this Term Sheet in economics, collateral, covenants or structure; (c) Lender fails to deliver a first draft of the Loan Agreement and Warrant within the period in Section 19; (d) Lender fails to confirm final credit approval by [DATE]; or (e) Lender fails to complete its diligence by [DATE]. The Company may also terminate the Exclusivity Period on written notice if Lender is not negotiating in good faith toward the Closing Date.

22.3 Break-Up Fee and Expense Reimbursement

[No break-up fee will apply.] If, during the Exclusivity Period and in breach of Section 22.1, the Company accepts a proposal for a competing facility, the Company will reimburse Lender’s documented expenses up to the Legal Fee Cap [and pay a break-up fee of $[●]]. If Lender withdraws for a reason other than the Company’s breach, Lender will refund the unapplied Deposit and bear its own expenses. This Section 22 is binding.

23 No Commitment, Credit Approval Status and No Reliance

No financing commitment exists until the Loan Documents are executed and the conditions in them are satisfied or waived. Lender confirms that this Term Sheet [has been approved by its credit or investment committee / remains subject to credit or investment committee approval, which Lender expects to obtain by [DATE]], and will notify the Company promptly if approval is denied or conditioned. Neither party may rely on a forecast, approval expectation or oral assurance not included in a signed writing. During the Exclusivity Period, each party will negotiate in good faith toward the Loan Documents, but neither party is obligated to agree to any term not set forth in this Term Sheet. This Section 23 is binding.

24 Governing Law, Venue and Jury Waiver

The Binding Provisions, and the Loan Documents when executed, will be governed by the laws of the State of [STATE], without regard to its conflicts-of-law rules, except that the creation, perfection and priority of security interests will be governed by the law applicable under the Uniform Commercial Code. Each party consents to the exclusive jurisdiction of the state and federal courts located in [COUNTY, STATE] for any dispute relating to the Binding Provisions, waives objection to venue, and agrees that either party may seek temporary or preliminary equitable relief in any court of competent jurisdiction. EACH PARTY WAIVES TRIAL BY JURY TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. [If the governing law does not enforce a pre-dispute jury waiver, the parties agree to judicial reference or another mechanism permitted by that law.] This Section 24 is binding.

25 Binding and Nonbinding Provisions

The Binding Provisions are the only legally binding obligations created by this Term Sheet. No other provision creates an obligation to lend, borrow, issue securities or agree to any term, and no course of conduct, exchange of drafts or partial performance will create such an obligation. This Term Sheet is not an offer to sell or a solicitation of an offer to buy securities, and the Warrant terms are nonbinding until the Warrant is issued. There are no third-party beneficiaries of this Term Sheet.

26 Expiration and Acceptance

This Term Sheet expires at [TIME AND TIME ZONE] on [DATE] unless countersigned by the Company and delivered to Lender before that time or extended in a writing signed by both parties. Acceptance may be delivered by electronic signature or portable document format, and counterparts are permitted. Acceptance does not waive any board, stockholder, investor, regulatory or other approval, and the Company’s obligations under the Loan Documents remain subject to those approvals. Upon expiration or termination, the nonbinding provisions cease to have effect and the Binding Provisions survive as stated in Section 25.

27 Signature Blocks

The undersigned acknowledge that Sections 20.1 and 21 through 26 are binding and that all other provisions are nonbinding expressions of intent.

LENDER: [LENDER LEGAL NAME]
By: [●]
Name: [●]
Title: [●]
Date: [●]

COMPANY: [BORROWER LEGAL NAME]
By: [●]
Name: [●]
Title: [●]
Date: [●]

[ACKNOWLEDGED AS TO SECTIONS 1.2 AND 8.5 ONLY:
GUARANTOR: [GUARANTOR LEGAL NAME]
By: [●]
Name: [●]
Title: [●]
Date: [●]]

Schedule 1 — Existing Debt, Liens and Required Consents

Complete this Schedule from the lien searches, the debt schedule, the capitalization table and a review of every material contract for liens, negative pledges, anti-assignment clauses and payment rights. Lien searches were conducted on [DATE] in [JURISDICTIONS] against [NAMES SEARCHED, INCLUDING PRIOR NAMES].

Schedule 2 — Tranche and Milestone Matrix

Part A — Tranche Terms

Part B — Milestone Design

Milestones must be measurable from the Company’s existing reporting without a lender-specific calculation. A Milestone that depends on “Lender’s satisfaction” or on the absence of a Material Adverse Change is not a Milestone for purposes of this Term Sheet and should be struck or converted to an objective test.

Schedule 3 — Founder Negotiation Matrix

This Schedule consolidates, for every economic and structural term, the lender’s typical opening ask, the current market range, the founder-protective position and the trade-offs between them. Bracketed dollar amounts are illustrative scale markers for a facility of $[3,000,000] to $[15,000,000] and must be resized to the actual facility. Market ranges are practitioner observations as of the version date and must be verified against current proposals. Use the final column to record the Company’s priority (High, Medium or Low) and the term it is willing to concede in exchange.

Schedule 4 — Total Cost of Capital Model Inputs

The board should see an all-in cost of capital under at least three scenarios before accepting any proposal: a base case in which the next equity round closes as planned and the facility is repaid or refinanced; a delayed-raise case in which the next round closes [12] months late and the Company carries the facility through amortization; and a no-raise case in which no further equity is raised and the Company must service the facility from operations or face a covenant breach. Complete Part A for each case, compute the Part B outputs, and record the Part D runway outcomes. The firm’s compliance certificate form (EF-101) supplies the covenant calculation conventions.

Part A — Inputs

Part B — Outputs

Part C — Illustrative Calculation

The following illustration uses hypothetical inputs for a single tranche and is included only to show the mechanics. It is not a projection for any company and must be replaced with the Company’s actual figures.

The illustration shows that the Final Payment and Prepayment Premium dominate the cost of capital on a short hold, that the effective rate on a facility repaid at the next round can exceed the stated coupon by approximately four percentage points, and that amortization multiplies monthly debt service by more than four times when the Interest-Only Period ends. Converting the stated rate from a 360-day to a 365-day basis adds approximately 0.17 percentage points at a 12% coupon.

Part D — Runway and Covenant Scenario Summary

Reconcile the Part D figures to the Company’s board-approved operating plan and record the model version, preparer and date. The board record should state in which month amortization begins relative to the Company’s cash-out date without the facility and whether, in the no-raise case, the facility extends or compresses the period in which the Company can execute a sale or restructuring.

Schedule 5 — Definitions

Capitalized terms used in this Term Sheet have the meanings below. Where a definition refers to a negotiated amount or percentage, the figure is stated in the referenced Section. The Loan Agreement definitions will control once executed and must be conformed to these.

Website Posting README — Not Part of the Agreement

What this form is for

This founder-focused term sheet organizes every business and legal decision that determines the real cost and risk of venture debt. It is deliberately more detailed than a lender’s summary of terms so that the Company can expose undefined lender discretion, hidden back-end economics, covenant paths to default and closing dependencies before definitive documents are drafted. The form covers parties, facility and tranche structure, interest and benchmark mechanics, interest-only and amortization design, each fee, prepayment, use of proceeds, the full collateral package including the intellectual-property structure and account control, the warrant, financial and reporting covenants, affirmative and negative covenants with basket guidance, events of default and remedies, conditions precedent and subsequent, representations, required board and investor approvals, the binding provisions and signature blocks. Schedule 3 states the lender’s opening ask, the market range and the founder-protective position for every economic term, and Schedule 4 supplies the inputs for an all-in cost of capital model under base, delayed-raise and no-raise cases. Schedule 5 defines every capitalized term. It is designed to be used with the firm’s companion forms EF-098 through EF-104 and the security, guaranty, subordination, pledge and IP security forms EF-076 through EF-080.

Completion checklist

• Complete the Matter Completion Sheet from the capitalization table, governing documents, investor agreements, debt schedule, lien searches, board plan and the lender’s proposal.
• Confirm every tranche, Availability Period, Milestone, minimum draw and draw count in Section 2 and Schedule 2, and strike any Milestone that depends on lender discretion.
• Select the interest basis, Floor, Default Rate, day count and PIK position in Section 3; conform the benchmark-replacement language to the index actually used.
• Set the Interest-Only Period, extension trigger, amortization method and Maturity Date in Section 4 by reference to the expected next-round date and the cash-out date without the facility.
• Price every fee in Section 5 against the Schedule 3 ranges and confirm that the fee summary table lists every fee in the proposal and any fee letter.
• Negotiate the Prepayment Premium exceptions, the Change of Control treatment and the absence of equity-proceeds sweeps in Section 6.
• Select the intellectual-property structure, Excluded Assets, Excluded Accounts, Control Agreement timing, foreign-subsidiary treatment and landlord-waiver standard in Section 8 only after UCC and IP specialist review.
• Translate Warrant Coverage into a share count and fully diluted percentage, select the class and Exercise Price formula, and reject put rights and price-based anti-dilution in Section 9.
• Choose no more than two financial covenants, set Equity Cure and reset mechanics, and align reporting deadlines with the Company’s close calendar in Sections 10 and 11.
• Size every negative covenant basket in Section 13 to the operating plan using the basket summary table.
• Work through each row of the Events of Default table in Section 14, resolve the Material Adverse Change, investor-abandonment, key-person and going-concern positions, and conform cure periods.
• Move every third-party deliverable in Section 16 to a conditions-subsequent covenant with a deadline.
• Complete the approval matrix in Section 18 against the charter, investors’ rights agreement, voting agreement, ROFR and co-sale agreement and side letters, and confirm whether the Warrant is an excluded issuance.
• Complete Schedules 1 through 5; build the Schedule 4 model with actual projections and present it to the board with the Section 2.6 analysis.
• Confirm the Binding Provisions, credit approval status, exclusivity terminators and term sheet expiration, delete unused alternatives and bracketed options, and conform the governing-law choice to the usury and licensing analysis.

AI completion prompt

Three pass review

Pass 1 Completeness. Verify parties and Guarantors, every Tranche and Milestone, interest and benchmark mechanics, Interest-Only Period and amortization, Maturity Date, every fee, prepayment terms, use of proceeds, collateral and IP structure, account control, foreign subsidiaries, Warrant terms, financial and reporting covenants, affirmative and negative covenants with baskets, Events of Default with cure periods, remedies, conditions precedent and subsequent, representations, approvals, documentation, Binding Provisions, signature blocks and all five Schedules, and confirm every Section cross-reference and every defined term resolves.
Pass 2 Risk. Test runway compression at amortization start, Milestone failure, next-round delay, no-raise cash-out, IP enforcement, Control Agreement sweep, investor-consent failure, Change of Control cost, Material Adverse Change and investor-abandonment exposure, cross-default exposure, Warrant dilution at low and high exit valuations, and the all-in effective rate at each likely repayment month.
Pass 3 Publication. Remove matter facts, lender branding, private projections, model outputs and internal comments; confirm the educational disclaimer, Pandoc-compatible formatting, table integrity, links and the downloadable Word file; confirm no first-person narratives, real names, outcome guarantees or firm signature attribution appear.

Attorney review warning

This is a practitioner master and educational resource, not a commitment, opinion or matter-cleared instrument. Market ranges stated in this form are practitioner observations as of the version date and may not reflect the terms available to any particular company. Responsible counsel must confirm the current law, the lender’s regulatory status, the usury and licensing analysis, the tax and accounting treatment of the Warrant and fees, the Company’s governing documents and the actual transaction before signing or publication.