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Barbudev vs. Eurocom Cable Management Bulgaria EOODCopeland v. Baskin Robbins, 96 Cal. App. 4th 1251, 117 Cal. Rptr. 2d 875 (2002), the California Court of AppealPharmAthene, Inc. v. SIGA Technologies, Inc.;

Convertible note

THIS TERM SHEET DOES NOT CONSTITUTE AN OFFER

________, Inc.

Memorandum of Terms for Financing

This memorandum summarizes the principal terms proposed by ______., a Delaware corporation (the Company), with respect to the issuance of convertible promissory notes (the Financing) to certain investors (the Purchasers).

Definitive AgreementsThe Company will sell Convertible Promissory Notes (the Notes), to one or more Purchasers acceptable to the Company. Each Note shall be issued and sold pursuant to a convertible note purchase agreement containing customary representations and warranties of the Company and the Purchasers to be prepared by the Companys legal counsel (the Note Purchase Agreement).

InterestThe interest rate of the Notes shall be 5% per annum. Simple interest will accrue on the outstanding principal but not become payable until the date of maturity.

MaturityThe Notes will become due and payable in full on the second anniversary of date of the execution of the Note Purchase Agreement.

Automatic Conversion on a Qualified Financing

Upon the closing by the Company of an equity financing in which the Company receives gross proceeds of at least $250,000, not including as a result of the conversion of the Notes or other indebtedness ( such event, a Qualified Financing), all outstanding principal and interest on each Note will automatically convert into shares of the equity security sold in the Qualified Financing at a price per share equal to the lesser of (i) the price per share paid by the investors in the Qualified Financing less the applicable Conversion Discount Price (as defined below), and the (ii) Capped Price as defined below. The Capped Price shall be equal to the per share price implied by a fully-diluted, pre-money valuation of $3,000,000 (which valuation includes any increase to the option pool made prior to or at the time of such financing and all other rights to acquire capital stock of the Company outstanding at the time of such financing). The Conversion Discount shall equal 20%.

Sale of CompanyIn the event of a sale of the Company prior to conversion or repayment of the Notes, Purchasers will receive in preference to the holders of the Common Stock the greater of (i) their principal (plus any unpaid interest), or (ii) the amount they would receive if the principal and interest outstanding on the Notes were converted into shares of the Companys common stock at a conversion price per share equal to the Sales Price, effective immediately prior to the completion of such sale of the Company. The Sales Price shall be equal to the per share price implied by a fully-diluted, pre-money valuation of $2,000,000 (which valuation includes all other rights to acquire capital stock of the Company outstanding and exercisable at the time of such sale excluding the notes)

Accredited InvestorsThe Notes will only be issued to (i) Purchasers who qualify as accredited investors under Regulation D, or to (ii) Purchasers who are not a US Person and are not acquiring the Notes for the benefit of any US Person and are purchasing the Notes in an off-shore transaction (as such terms are defined under Regulation S). No offer is or will be made to anyone who does not so qualify.

Risk FactorsInvestment in the Notes involves a high degree of risk. Purchasers should be aware that they may lose some or all of their investment and that the Company is an early stage startup company with limited resources.

Amendments and WaiversSo long as any of the Notes are outstanding, consent of the Purchasers of at least a majority of the principal amount of the Notes outstanding will be required for any action that amends or waives any provision of the Notes.

Confidentiality:The Investor agrees to treat this term sheet confidentially and will not distribute/disclose its existence or contents except to his, her or its accountant and legal counsel for the express purposes of determining the advisability of the planned investment and the terms herein.

Non Binding Obligation

Except for the Confidentiality provisions above which will be legally binding upon the Investors, this term sheet is not intended to create any binding obligations.

________, INC.

________________________

Name:

Title:INVESTOR:

___________________________________

Name:

Title (if applicable):

B4373772.1

B4381870.1

B4302293.1

B4373772.1

B4381870.1