TERM SHEET FOR INVESTMENT IN ABC.COM, INC by sor88113

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									                                           TERM SHEET FO R
                                    IN VESTMEN T IN ABC.CO M, IN C.

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ABC, L.L.C. o n b e h a lf o f itse lf o r a n a ffilia te (“th e “In ve sto r”) is h o n o re d to
p re se n t to yo u th e fo llo win g o utlin e o f th e sub sta n ce o f o ur p ro p o sa l re g a rd in g
th e te rm s o n wh ich we wo uld in ve st in ABC.co m , In c. Th is Te rm Sh e e t is
n o n - b in d in g (e xce p t fo r th e p ro visio n s o n d ue d ilig e n ce , d e a l e xp e n se s,
e xclusivity a n d o rd in a ry co urse o f b usin e ss, wh ich a re b in d in g ) a n d is sub je ct to
d e fin itive d o cum e n ta tio n .

CO MPAN Y:                  ABC.c o m, In c . (t h e “ Co mp a n y” ).

AMO UN T O F
FIN AN CIN G :              $ 5 0 0 ,0 0 0 t o b e p r o vid e d b y t h e In ve s t o r in t wo t r a n c h e s :
                            Tr a n c h e 1 wo u l d b e in a n a mo u n t e q u a l t o $ 2 5 0 ,0 0 0 a n d
                               wo u l d b e d u e a n d p a ya b l e in f u l l wit h in 1 0 b u s in e s s
                               d a ys a f t e r (a ) t h e Co mp a n y h a s r e c e ive d in d e p e n d e n t
                               ve r if ia b l e u n iq u e mo n t h l y vis it o r s t o it s we b s it e (“
                               Vis it o r s ” ) in e xc e s s o f 1 0 0 ,0 0 0 f r o m a min imu m o f t wo
                               n e w mu s ic s it e s a n d (b ) 3 0 0 ,0 0 0 Vis it o r s f r o m it s
                               e xis t in g we b s it e .

                            Tr a n c h e 2 wo u l d b e in a n a mo u n t e q u a l t o $ 2 5 0 ,0 0 0 a n d
                               wo u l d b e d u e a n d p a ya b l e in f u l l wit h in 1 0 b u s in e s s
                               d a ys a f t e r t h e Co mp a n y h a s r e c e ive d in e xc e s s o f 3 0 0 ,0 0 0
                               Vis it o r s f r o m a min imu m o f f ive n e w mu s ic s it e s
                               (in c l u d in g t h e t wo n e w s it e s f r o m Tr a n c h e 1 ). In ve s t o r
                               h a s n o o b l ig a t io n t o ma k e a n y in ve s t me n t u n d e r Tr a n c h e
                               2 wit h in t h r e e mo n t h s o f t h e c l o s in g o f Tr a n c h e 1 .

TYPE O F
SECURITY:                    S e r ie s A P a r t ic ip a t in g P r e f e r r e d S t o c k f o r Tr a n c h e 1 (t h e
 “ Ne w A P r e f e r r e d ” ) a n d S e r ie s B P a r t ic ip a t in g P r e f e r r e d S t o c k f o r
Tr a n c h e 2 (t h e “ Ne w B P r e f e r r e d ” ) (t h e Ne w A P r e f e r r e d a n d Ne w B
P r e f e r r e d a r e c o l l e c t ive l y, t h e “ Ne w P r e f e r r e d ” ), in it ia l l y c o n ve r t ib l e o n
a 1 :1 b a s is in t o s h a r e s o f t h e Co mp a n y’s Co mmo n S t o c k (t h e “ Co mmo n S t o c k ” ).
In a d d it io n , u p o n t h e e xe c u t io n o f t h e in ve s t me n t d o c u me n t s c o n t e mp l a t e d
h e r e in t h e In ve s t o r s h a l l b e is s u e d a wa r r a n t (t h e “ Wa r r a n t ” ) t o p u r c h a s e
1 2 5 ,0 0 0 s h a r e s o f Co mmo n S t o c k a t $ 1 .0 0 p e r s h a r e . Th e Wa r r a n t ma y b e
e xe r c is e d a t a n y t ime a f t e r t h e c l o s in g .

PRICE:                       $ 1 .0 0 p e r s h a r e f o r t h e Ne w P r e f e r r e d p u r c h a s e d in
Tr a n c h e 1 (t h e “ Or ig in a l Tr a n c h e 1 P u r c h a s e P r ic e ” ) wh ic h wo u l d p u r c h a s e
a p p r o xima t e l y 7 .6 9 % o f t h e Co mp a n y’s t o t a l c a p it a l s t o c k o n a f u l l y-d il u t e d
b a s is . Th is a s s u me s t h a t t h e Co mp a n y is va l u e d a t $ 3 mil l io n o n a p r e -mo n e y
b a s is .

                            $ 1 .5 4 p e r    s h ar e f or     t h e Ne w P r e f e r r e d p u r c h a s e d in
Tr a n c h e 2 (t h e “ Or ig in a l Tr a n c h e 2 P u r c h a s e P r ic e ” ) wh ic h wo u l d p u r c h a s e
a p p r o xima t e l y 5 .0 0 % o f t h e Co mp a n y’s t o t a l c a p it a l s t o c k o n a f u l l y-d il u t e d
b a s is . Th is a s s u me s t h a t t h e Co mp a n y is va l u e d a t $ 5 mil l io n o n a p r e -mo n e y
b a s is . (t h e Or ig in a l Tr a n c h e 1 P u r c h a s e P r ic e a n d Or ig in a l Tr a n c h e 2
P u r c h a s e P r ic e a r e s o me t ime s c o l l e c t ive l y r e f e r r e d t o a s t h e “ Or ig in a l
P u r c h a s e P r ic e ” ).

RESULTIN G
CAPITALIZATIO N : A p r o f o r ma c a p it a l iz a t io n t a b l e s h o win g t h e Co mp a n y’s
c a p it a l s t r u c t u r e imme d ia t e l y f o l l o win g t h e Cl o s in g o f e a c h o f Tr a n c h e 1
a n d Tr a n c h e 2 is a t t a c h e d a s Exh ib it A.

AN TICIPATED
CLO SIN G :                An t ic ip a t e d s ig n in g o f d e f in it ive d o c u me n t a t io n wo u l d b e
F e b r u a r y ___, 2 0 __.

BUDG ET:                    Th e f u n d s wil l b e u s e d in a c c o r d a n c e wit h a b u d g e t t o b e
a g r e e d t o b y t h e p a r t ie s .

TERMS O F N EW
PREFERRED:                 Th e f o l l o win g s e t s f o r t h c e r t a in t e r ms o f t h e Ne w
Pr e f e r r e d:

                                Liq u id a t io n    Pr e f e r e n c e .   S u p e r io r to    al l     ot h e r
p r e f e r r e d s h a r e s a n d Co mmo n S t o c k . In t h e e ve n t o f a n y l iq u id a t io n o r
win d in g u p o f t h e Co mp a n y, t h e h o l d e r s o f t h e Ne w P r e f e r r e d s h a l l b e
e n t it l e d t o r e c e ive in p r e f e r e n c e t o t h e h o l d e r s o f t h e Co mmo n S t o c k a n d
o t h e r c l a s s e s o f p r e f e r r e d s t o c k a n a mo u n t e q u a l t o t h e s u m o f (a ) t h e
Or ig in a l P u r c h a s e P r ic e (t o g e t h e r wit h a l l a c c r u e d a n d u n p a id d ivid e n d s
t h e r e o n ) a n d (b ) t h e a mo u n t p e r s h a r e a s wo u l d h a ve b e e n p a ya b l e h a d e a c h
s h a r e o f Ne w P r e f e r r e d b e e n c o n ve r t e d in t o Co mmo n S h a r e s imme d ia t e l y
p r io r t o t h e l iq u id a t io n e ve n t . A s a l e o f a l l o r s u b s t a n t ia l l y a l l o f t h e
a s s e t s o f t h e Co mp a n y, s a l e o f a l l o r s u b s t a n t ia l l y a l l o f t h e s h a r e s o f
c a p it a l s t o c k o f t h e Co mp a n y, o r a me r g e r o r c o n s o l id a t io n in wh ic h t h e
s h a r e h o l d e r s o f t h e Co mp a n y d o n o t o wn a ma j o r it y o f t h e o u t s t a n d in g
s h a r e s o f t h e s u r vivin g c o r p o r a t io n s h a l l a l s o b e d e e me d t o b e a
l iq u id a t io n .

                               Divid e n d s . 8 % p e r a n n u m, c u mu l a t ive a n d c o mp o u n d e d
s e mi-a n n u a l l y.

                               Dis t r ib u t io n s . No d ivid e n d s t o Co mmo n o r o t h e r c l a s s e s
o f p r e f e r r e d o wn e r s u n t il a l l a c c r u e d d ivid e n d s a n d Ne w P r e f e r r e d a r e
p a id in f u l l a n d n o l iq u id a t in g d is t r ib u t io n s t o Co mmo n o r o t h e r c l a s s e s o f
p r e f e r r e d o wn e r s u n t il t h e l iq u id a t io n p r e f e r e n c e o f t h e Ne w P r e f e r r e d is
p a id in f u l l .

                               Vo t in g Rig h t s . Th e Ne w P r e f e r r e d wil l vo t e t o g e t h e r
wit h t h e Co mmo n S t o c k a n d n o t a s a s e p a r a t e c l a s s e xc e p t a s s p e c if ic a l l y
p r o vid e d h e r e in (s u c h a s in t h e s e c t io n u n d e r Go ve r n a n c e ) o r a s o t h e r wis e
r e q u ir e d b y l a w. Ea c h s h a r e o f Ne w P r e f e r r e d s h a l l h a ve a n u mb e r o f vo t e s
e q u a l t o t h e n u mb e r o f s h a r e s o f Co mmo n S t o c k t h e n is s u a b l e u p o n
c o n ve r s io n o f s u c h s h a r e o f Ne w P r e f e r r e d .

                               Op t io n a l Co n ve r s io n . Th e h o l d e r s o f t h e Ne w P r e f e r r e d
s h a l l h a ve t h e r ig h t t o c o n ve r t t h e Ne w P r e f e r r e d , a t a n y t ime , in t o s h a r e s
o f Co mmo n S t o c k . Th e in it ia l c o n ve r s io n r a t e s h a l l b e 1 :1 a t t h e Or ig in a l
P u r c h a s e P r ic e (“ Co n ve r s io n P r ic e ” ), s u b j e c t t o a d j u s t me n t a s p r o vid e d
b e l o w.

                                Ma n d a t o r y Co n ve r s io n . Th e Ne w P r e f e r r e d s h a l l b e
a u t o ma t ic a l l y c o n ve r t e d in t o Co mmo n S t o c k , a t t h e t h e n a p p l ic a b l e
Co n ve r s io n P r ic e , u p o n t h e c l o s in g o f a f ir ml y u n d e r wr it t e n p u b l ic
o f f e r in g o f s h a r e s o f Co mmo n S t o c k o f t h e Co mp a n y a t a p e r s h a r e p r ic e n o t
l e s s t h a n $ ______ p e r s h a r e a n d f o r a t o t a l o f f e r in g o f n o t l e s s t h a n $ _____
mil l io n , a f t e r d e d u c t io n o f u n d e r wr it e r s ’ c o mmis s io n s a n d e xp e n s e s (a “
Qu a l if ie d IP O” ). Ac c r u e d d ivid e n d s wil l b e wa ive d .

                                 An t i-Dil u t io n . Th e Co n ve r s io n P r ic e o f             t h e Ne w
P r e f e r r e d (a n d t h e s t r ik e p r ic e f o r t h e Wa r r a n t ) wil l b e s u b j e c t t o a f u l l
r a t c h e t a d j u s t me n t t o r e d u c e d il u t io n in t h e e ve n t t h a t t h e Co mp a n y is s u e s
a d d it io n a l e q u it y s e c u r it ie s (o t h e r t h a n t h e r e s e r ve d e mp l o ye e s h a r e s
d e s c r ib e d u n d e r “ Emp l o ye e P o o l ” b e l o w o r u p o n c o n ve r s io n o f t h e In ve s t o r ’
s s h a r e s ) a t a p u r c h a s e p r ic e l e s s t h a n t h e a p p l ic a b l e c o n ve r s io n p r ic e .
Th e Co n ve r s io n P r ic e wil l a l s o b e s u b j e c t t o p r o p o r t io n a l a d j u s t me n t f o r
s t o c k s p l it s , s t o c k d ivid e n d s , r e c a p it a l iz a t io n a n d t h e l ik e .

                                 In f o r ma t io n Rig h t s . S o l o n g a s t h e In ve s t o r s c o n t in u e
t o h o l d s h a r e s o f Ne w P r e f e r r e d o r Co mmo n S t o c k is s u e d u p o n c o n ve r s io n
o f t h e Ne w P r e f e r r e d , t h e Co mp a n y s h a l l d e l ive r t o t h e In ve s t o r s (a )
u n a u d it e d mo n t h l y f in a n c ia l s t a t e me n t s (wit h in 3 0 d a ys o f t h e e n d o f t h e
a c c o u n t in g p e r io d ), (b ) a we e k l y e xe c u t ive s u mma r y u p d a t in g t h e In ve s t o r o f
e ve n t s t r a n s p ir in g d u r in g t h e p r e c e d in g we e k , (c ) p e r io d ic s t a t e me n t s o f
ma t e r ia l d e ve l o p me n t s , (d ) a n a n n u a l b u d g e t a n d o p e r a t in g p l a n s f o r t h e
c o min g f is c a l ye a r a t l e a s t 3 0 d a ys p r io r t o e a c h f is c a l ye a r e n d , a n d (e ) a n
a n n u a l a u d it e d f in a n c ia l s t a t e me n t p r o vid e d wit h in 9 0 d a ys o f t h e e n d o f
t h e Co mp a n y’s f is c a l ye a r . In ve s t o r s h a l l a l s o b e e n t it l e d t o s t a n d a r d
in s p e c t io n a n d vis it a t io n r ig h t s . Th e s e p r o vis io n s s h a l l t e r min a t e u p o n a
Qu a l if ie d IP O.

                                P r e -Emp t ive Rig h t s . Ea c h In ve s t o r h o l d in g s h a r e s o f
Ne w P r e f e r r e d o r s h a r e s o f Co mmo n if c o n ve r t e d s h a l l h a ve t h e r ig h t in
t h e e ve n t t h e Co mp a n y p r o p o s e s t o o f f e r e q u it y s e c u r it ie s t o a n y p e r s o n
(o t h e r t h a n s e c u r it ie s is s u e d t o e mp l o ye e s , d ir e c t o r s o r c o n s u l t a n t s o r
p u r s u a n t t o a c q u is it io n s , e t c .) t o p u r c h a s e it s p r o r a t a s h a r e o f s u c h
s e c u r it ie s (b a s e d o n t o t a l f u l l y-d il u t e d n u mb e r o f s h a r e s o f c o mmo n s t o c k
o u t s t a n d in g ). S u c h r ig h t o f f ir s t r e f u s a l wil l t e r min a t e u p o n a Qu a l if ie d
IP O.

                                Co -S a l e Rig h t s . In ve s t o r s s h a l l h a ve (i) t h e r ig h t t o
t a g -a l o n g u p o n a s a l e b y a n y h o l d e r o f Co mmo n S t o c k a n d /o r o t h e r h o l d e r s
o f o t h e r s e r ie s o f p r e f e r r e d s t o c k a n d (ii) a r ig h t o f f ir s t r e f u s a l u p o n
s u c h s a l e c o n t e mp l a t e d in (i) a b o ve .

								
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