Alaska Term Sheet - Royalty Payment Convertible Note

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Multi-State
Control #:
US-ENTREP-0049-1
Format:
Word; 
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Description

This Term Sheet summarizes the principal terms with respect to a potential private placement of equity securities of a "Company") by a group of investors ("Investors") led by a Venture Fund. This Term Sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation except as provided under "Confidentiality," "Exclusivity", and "Expenses" below. No other legally binding obligation will be created, implied or inferred until a document in final form entitled "Stock Purchase Agreement" is executed and delivered by all parties. Without limiting the generality of the foregoing, it is the parties intent that, until that event, no agreement shall exist among them and there shall be no obligations whatsoever based on such things as parol evidence, extended negotiations, "handshakes," oral understandings, courses of conduct (including reliance and changes of position), except as provided under "Confidentiality," "Exclusivity", and "Expenses" below.
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FAQ

Convertible bonds can affect all three sections of a balance sheet. Asset accounts ?cash? and ?debt issue costs? reflect proceeds and expenses from issuing a bond. You also update the cash account when you repay the face value of a maturing bond.

SAFE notes are technically equity, not debt, and we account for them as equity on the balance sheet. This has important ramifications for investors who are trying to take advantage of the Qualified Small Business Stock (QSBS) exclusion.

Calculating post-money valuation Post-money valuation = Pre-money valuation + Size of investment. ... Share price = New investment amount / # of new shares received. ... Post-money valuation / total # of shares post-investment = New investment amount / # of new shares received.

A term sheet is usually a non-binding agreement outlining the basic terms and conditions of the investment. It serves as a template for the convertible note for both parties.

So the cash coming in from your convertible note will generally equate to the liability that you add to the balance sheet. And, if your accounting is doing a good job, the accrued interest is a non-cash expense that flows through your income statement and impacts your accumulated net income in the equity section.

A convertible note should be classified as a Long Term Liability that then converts to Equity as stipulated from the contract (usually a new fundraising round).

Copyright PURE Asset Management 2022. A convertible note, also called a hybrid security or hybrid, refers to a debt instrument that can be converted into equity (ownership in a company) at some point in time in the future.

Convertible Notes are loans ? so they are recorded on the Balance Sheet of a company as a liability when they are made. Depending on the debt's maturity date, they can either be shown as a current liability (loans maturing within 12 months) or as a Long-term liability (loans maturing over 12 months).

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Alaska Term Sheet - Royalty Payment Convertible Note