Description of Washington Term Sheet — Royalty Payment Convertible Note The Washington Term Sheet — Royalty Payment Convertible Note is a legally binding document used in financial transactions, specifically in the context of startup investments. It outlines the terms and conditions under which an investor provides funding to a company in exchange for future royalty payments and the option to convert their investment into equity. The Washington Term Sheet — Royalty Payment Convertible Note serves as a roadmap for the investors and entrepreneurs, ensuring transparency and clarity regarding the agreement's key terms and provisions. This type of note offers certain advantages compared to traditional debt or equity financing options, making it an attractive choice for both parties involved. Royalty Payment Convertible Notes offer investors a unique opportunity to receive a return on their investment through royalty payments. These payments are typically a percentage of the company's revenue or net sales over a specified period. Investors may choose to receive either a fixed percentage of revenue or a variable percentage that adjusts based on the company's performance. The Washington Term Sheet may include different variations of the Royalty Payment Convertible Note, including: 1. Fixed Interest Rate Royalty Payment Convertible Note: This type of note specifies a fixed interest rate on the invested amount, which is separate from the royalty payments. It ensures that the investor receives a predetermined interest on their investment in addition to the potential equity conversion. 2. Floating Interest Rate Royalty Payment Convertible Note: Unlike the fixed interest rate note, this variation includes an interest rate that fluctuates based on market conditions or an agreed-upon index. The interest rate adjusts periodically, offering potential higher returns to investors in a favorable market. 3. Equity Conversion Option: The Washington Term Sheet — Royalty Payment Convertible Note allows investors to exercise their right to convert their debt into equity shares of the company. This option becomes particularly valuable if the company experiences significant growth or if an exit event, such as an acquisition or initial public offering (IPO), occurs during the investment period. 4. Maturity Date and Repayment Terms: The term sheet provides details on the maturity date, when the note will mature, and the repayment terms, if applicable. Depending on the agreement between the parties, the note may become due for repayment in full or automatically convert into equity at the end of the term. Overall, the Washington Term Sheet — Royalty Payment Convertible Note is a financing instrument that offers flexibility to both startup companies seeking funding and investors looking for potential returns. It combines elements of debt financing, royalty payments, and the possibility of equity ownership in a single agreement, providing a balanced approach for all parties involved in the investment transaction.