TERM SHEET
FOR SERIES A ROUND OF FINANCING OF XCORP

Amount of
Investment: $3,000,000

Investors: ABC Ventures XYZ Capital

Type of Security: Series A Convertible Preferred Stock

Premoney Valuation: $7,000,000[1]

Capital Structure Following
Series A Round: Existing holders of Common Stock 55%

Option Pool 15%[2]

Holders of Series A Preferred Stock 30%

Total 100%

Use of Proceeds: The Company shall use the proceeds from this financing for working capital purposes.

Dividends: The Company will not pay dividends on its shares of Common Stock or any other stock which is junior to the Series A Preferred Stock unless a like dividend is paid on all shares of Series A Preferred Stock on a pro rata “as converted” basis.[3]

Conversion: Each share of Series A Preferred Stock shall be convertible, at any time, at the option of the holder, into shares of Common Stock, at an initial conversion ratio of one share of Common Stock for each share of Series A Preferred Stock. Mandatory conversion of the Series A Preferred Stock upon the effectiveness of a registration statement covering a firmly and fully underwritten public offering of Common Stock of the Company by a reputable underwriter acceptable to the Investors at a price which equals or exceeds five times the purchase price per share of the Series A Preferred Stock and where the aggregate gross proceeds received by the Company exceeds $25 million (a “Qualified Public Offering”)[4].

Antidilution: The terms of the Series A Preferred Stock will contain standard “weighted average” antidilution protection with respect to the issuance by the Company of equity securities at a price per share less than the applicable conversion price then in effect, subject to standard and customary