Vanilla Term Sheet Kft VEN

8/20/2019 Vanilla Term Sheet Kft VEN

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TERM SHEET

Parties

[…]

[…]

[…]

[Note: Please list all Founders]

together: “Founders”

Traction Labs Zártkörűen Működő Részvénytársaság (registered seat: 8000 Székesfehérvár,

Királysor 30., Hungary; registration number: Cg.07-10-001427) a company established andoperating under Hungarian law (“Investor”).

together: “Parties”

who shall establish a limited liability company (in Hungarian: korlátolt felelősségű társaság)

under Hungarian law (the “Company”) to achieve the strategic goal.

Strategic Goal

The Strategic Goal of the Company is to develop the marketable version and sale of a […]solution having the name […] developed by the Company. The Parties plan to sell their

quotas in the Company or the substantial assets of the Company to a third party within [ …]

years (“Exit”).

Valuation and Investment (Price)

The Parties agree that they value the Company at USD […] that is […] United States Dollar

(“Premoney Valuation”). The Parties shall enter into an investment agreement within thirty

(30) business days from signing of this Term Sheet. During this period of time the Founders

and the Company shall not continue negotiations with any other investors (No-Shop Clause).

The Investor shall invest a total amount of USD […] that is […] United States Dollar into the

Company (“Investment”). The Parties state that due to the Jeremie3 Program rules the

above USD amount shall be exchanged to HUF at an exchange rate of […] HUF/USD being the

closing MNB exchange rate on […] from which HUF […] shall be transferred as registered

capital and HUF […] shall be transferred as capital reserves to the Company.

The Investor shall transfer the amount of the Investment in one lump sum to the bank

account of the Company within fifteen (15) calendar days of signing of the investmentagreement. Should the Investor not transfer the amount of the Investment by this deadline,


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then on the day immediately following the deadline the investment agreement shall

automatically cease to have effect.

The parties attach the cost plan of the Company for the first two (2) years as Annex No. 1 to

this Term Sheet.

By the Investment the Investor shall acquire the following shareholding in the Company:

Premoney + amount of the Investment = Postmoney

Shareholding of the Founders = Premoney / Postmoney, that is […]%

Shareholding of the Investor = Investment / Postmoney, that is […]%

The preference rights in case of any liquidation event described in this Term Sheet shall be

attached to the quota held by the Investor (“Preferred Quota”). No such rights shall be

attached to the quotas held by the members other than the Investor (“Common Quota”).

The shareholding in the Company shall be described in Annex No. 2 attached to this Term

Sheet (Capitalization Table).

Rights and obligations of the Parties

The Founders of the Company undertake to irrevocably transfer all intellectual property

rights free of any royalty or charge to the Company that are necessary to the operation of

the Company, including but not limited to inventions, developments, methods, creations,softwares, technologies, procedures, processes, technical matters, documentations, domain

names, know-how and all materials under or giving rise to copyrights, trademarks, patents,

industrial designs or trade secrets, and all relating rights and documents. The scope of such

intellectual property transfer shall be set forth fully and controlled in its scope by an

intellectual property transfer agreement which shall reference the Founders and this Term

Sheet.

The Founders undertake that in lack of a justified reason (e.g. the size of the team, rental of

another office) they will carry out their activity in the office determined by the Investor(currently: Budapest, Lónyay utca 31., attic).

Founders undertake to participate in the pitch training organized by the Investor on each

Wednesday, and in the 1:1 meeting to be held with the Investor on each Friday.

Liquidation Preference

The Parties agree that upon Exit, from the purchase price received at Exit (i) first the amount

of the Investment shall be paid to the owner of the Preferred Quota and all approved but yet

unpaid dividends/interim dividends, then (ii) the remaining amount shall be distributed to


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the members of the Company in the ratio of their shareholding in the Company (1 x

liquidation preference, participating).

The owner of a Preferred Quota shall be entitled to liquidation preference. If the owner of

the Preferred Quota converts his/her Preferred Quota or any part of it to Common Quota

according to the provisions described in the below “Conversion of Preferred Q uota”, then

he/she shall lose the liquidation preference right attached to the converted quota or the

converted part thereof. If the owner of a Preferred Quota converts only a part of his/her

quota to Common Quota, his/her right to liquidation preference shall be decreased in a

corresponding ratio as follows:

A quota of […]% secures an amount of HUF […] liquidation preference. Therefore, a 1%

Preferred Quota secures an amount of HUF […] liquidation preference.

Any profit gained and distributed between the Parties during the operation of the Company(e.g. dividends/interim dividends) shall be distributed to the Parties in the ratio of their

shareholding.

Pay-to-Play

At its first general meeting or at another meeting as soon as may be held thereafter, on

proposal from the management of the Company, the Company shall decide on a qualified

financing. If the Company involves a qualified financing in order to maintain or increase

operations AND the owner of the Preferred Quota fails to participate in the next qualifiedfinancing on a pro rata basis (according to its total ownership immediately before such

financing) of his investment, then such holder will have the Preferred Quota, or its relevant

part automatically converted into Common Quota. If such holder participates in the next

qualified financing but not to the full extent of his pro rata share, then only a percentage of

his Preferred Quota will be converted into Common Quota, with that percentage being equal

to its pro rata contribution that he failed to contribute.

Vesting

The Company shall acquire a call option in respect of all Common Quotas on the

understanding that the Company can buy the Common Quotas of a relevant member of the

Company, or a portion thereof specified below, at a purchase price of HUF 5 (five Hungarian

forints) within forty-eight (48) months of the establishment of the Company, if the relevant

member actually carries out an activity that does not further serve the purpose of the

Company and does not fully comply with the job description of such person. The managing

director (defined below) of the Company will be entitled to decide whether any member

fails to carry out the activity that would be serving the purpose of the Company or fails to

comply with his/her job description; the general meeting will be entitled to do the same inthe event that the relevant member is the managing director. Upon establishment of the


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Company, the Company has a call option for the proportion of 48:48 of the quota of the

relevant member, which call option will be decreased upon elapse of six (6) months to the

proportion of 42:48, and then relates to a quota proportion that is lowered by the

proportion of 1:48 every month (4-year reverse vesting with a 6-month cliff period) (e.g.,

after the elapse of the first eighteen (18) months of the establishment of the Company, theCompany will only have an option for the proportion of 30:48 of the shares of the relevant

member). In respect of the ESOP defined below, the Parties may agree on stricter vesting

rules but not on any that are more favorable to the Founders.

The call option of the Company shall cease to exist with immediate effect (accelerated

vesting) in the case of an Exit AND the termination of the employment contract of the

owners having Common Quotas following the Exit.

Employee Stock Option Plan (ESOP)

The Company shall reserve 15% of the total amount (100%) of the Common Quotas prior to

closing and the Preferred Quotas to the debit of the Common Quotas in an Employee Stock

Option Plan (“ESOP”). The quotas to be entered into the ESOP are designed to motivate the

employees and other agents of the Company through the provisions of quota option. The

parties agree that the quotas not allotted from the ESOP to the employees or other agents

of the Company until the date of the Exit will be shared between the Founders pro-rata with

their prevailing shareholding at the time of the Exit.

Antidilution

When another investor invests capital into the Company, and in doing so it acquires a quota

at a lower valuation (Premoney) than the valuation at which the Investor acquired his quota,

the quota held by the Investor shall be adjusted on the basis of the price paid by the Investor

and the price paid by the new investor for their respective quota, and the proportion of the

amount of the quota held by the Investor and the quota acquired by the new investor. Upon

calculation of the adjusted price of the quota, all quotas of the Company shall be taken into

account, including the ESOP (broad-based weighted average antidilution). The Investor will

acquire the additional quotas that can be acquired on the basis of the above provision to the

debit of all of the holders of Common Quota (except for the Investor and the new investor),

as well as the quotas reserved for the purposes of ESOP.

Antidilution will be calculated based on the following formula:

NQP = Price of the Quota paid by the Investor at the Investment x (1 + CQP)/(1 + CQAP)

where

NQP = New Quota Price (New Quota Price).


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CQP = Common Quota Purchasable, that is the percentage (%) of Common Quota the second

round investor would have acquired in the second round, if he/she purchased a quota at a

price equal to the price paid by the Investor under this term sheet.

CQAP = Common Quota Actually Purchased, that is the percentage (%) of Common Quota

actually acquired by the second round investor.

Management

The size of the Company’s management shall be set at […]. The managing director of the

Company shall be […]. The managing director represents the Company as the sole managing

director and shall have all powers as set forth in the organizational documents of the

Company including the power to execute contracts and sign for the Company in any

approved transactions.

The prevailing chief financial officer (CFO) of the Company shall have a non-voting

participation right at the meetings of the management. The CFO shall be Ákos Eöry as the

Investor representative. As long as the Investor does not appoint a CFO, the managing

director shall fulfill any such tasks.

During the period of the investment the bookkeeping of the Company shall be carried out by

PB Talentum Kft. (registered seat: 1118 Budapest, Ménesi út 39., I. emelet 3. ajtó, Hungary;

registered seat: Cg.01-09-892881).

Protective provisions, investment and information rights

Parties agree that the owner of the Preferred Quota shall have veto rights in respect of the

following matters even if such owner has minority shareholding in the Company:

(i) the amendment, change or any alteration of the purpose/core business of the

Company;

(ii) the amendment to the articles of association of the Company, except for the

administrative amendments which have no direct business, financial impact or are not

considerable (e.g., compliance with the obligation, if any, required by law to change

company data, establishment, termination of premises, relocation of the registered

seat, etc.);

(iii) decision on the transfer, encumbrance or utilization in other manner of intellectual

properties held by the Company;

(iv) capital decrease, modification of the company form, transformation or termination of

the Company without legal successor;

(v) remuneration payable to the auditor and executive officers;

(vi) approval of the business plan;


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(vii) approval of expenses not stated in the business plan in excess of 5% of the annual

operating costs, approval of contracts to be entered into with affiliated

companies/close relatives, borrowing and undertaking of any obligations, the amount

of which exceeds 5% of the balance sheet total of the last closed business year;

(viii)

assumption and fulfillment/payment of expenditures or obligations not stated in thebusiness plan and of one-time nature up to the limit of over HUF 2,000,000 or at

monthly level in the total amount of over HUF 2,000,000.

In each month the Company shall provide the Investor with a report, data summary or

information. Every second week the Company shall send the Investor a KPI and a description

report. Should the Company be in delay with such report, it shall pay a penalty of USD 100

on each occasion to the Investor because of such delay the Investor will be late with its own

reporting obligations. The Company shall provide all other data and information upon the

request of the Investor.

The Company shall send its accounting documents (e.g. invoices, statement of work, etc.) to

the CFO or PB Talentum Kft. by the 5th day of each month. In case of delay a penalty of USD

100 shall be paid.

The managing director of the Company is required at the reasonable request of any member

to give information about the issues of the Company regardless of the trade, bank, securities

etc. secrets, and to enable examination into the business books and documents of the

Company by such requesting member.

Drag-along and Tag-along rights

The owner of the Preferred Quota shall have the following drag-along right and tag-along

rights as follows:

The drag-along right attached to the Preferred Quota means that the owner of the Preferred

Quota shall have the right to oblige the owners of the Common Quota to transfer their quota

to a third party with the same terms and conditions as the owner of the Preferred quota.

The drag-along right can be exercised only if the value of the Company reaches at least USD

[…] according to the purchase offer. At a purchase price resulting in a lower valuation thanabove the drag-along right cannot be exercised. Furthermore, the drag-along right cannot

be exercised to a part of the Common Quotas, only to all such quotas, that is to all Common

Quotas at the same time, with the same terms and conditions.

The tag-along right attached to the Preferred Quota means that the owner of the Preferred

Quota shall have the right that if the owners of the Common Quotas transfer their quotas,

then the owner of the Preferred Quota can join them and sell his/her quota with the same

terms and conditions applicable to the owners of the Common Quota. If the owner of the

Preferred Quota wishes to exercise his/her tag-along right, the owners of the Common


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Quota may transfer their quotas only if the purchaser purchases the quota of the owner of

the Preferred Quota.

The Parties agree that in order to ensure the fulfillment of the rights and obligations

described in this clause, they exclude any transfer of the quotas (e.g. gratuitous conveyance,

exchange) other than sale and purchase.

Right of first refusal and pre-emption right

Right of first refusal: in case of the transfer of the quota or any part thereof held by any

member of the Company to an independent third party, the other members of the Company

shall have a right of first refusal in respect of the quota to be transferred by sale and

purchase.

Pre-emption right: in case of a qualified financing, the Investor can participate in the capitalincrease before the third party investor with the same terms and conditions. The pre-

emption right shall be due at first to the holders of the Preferred Quota then to the holders

of the Common Quota.

Conversion of Preferred Quota

The holder of the Preferred Quotas is entitled to convert his/her shares into Common Quota

at any time during the existence of the Company. The Common Quotas cannot be converted

into Preferred Quotas.

The Preferred Quota -> Common Quota conversion shall be executed automatically in the

case when the Company decides about the next qualified investment, but the owner of the

Preferred Quota is unable or unwilling to participate in the next qualified financing in ratio of

his/her shareholding (Pay-to-Play). If in the next qualified financing the owner of the

Preferred Quota does not participate in the ratio of his/her shareholding, then the Preferred

Quota, or its relevant part shall be automatically converted into Common Quota. From the

Preferred Quota of the Investor the following part shall be converted:

CONV = 1 – (INVX / INVB)

where

CONV = the ratio of the Preferred quota that shall be converted.

INVX

= the new amount that has been actually invested by the Investor in the new

investment round.

INVB = (INV) x (the amount of the Preferred quota in percentage held by the Investor).

INV = the amount in Hungarian forints invested in the new investment round.


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Non-Interference

While any Founder is with the Company and for a period of one (1) year thereafter, and so

long as the Investor holds a shareholding in the Company, the Founders of the Company shall

not have any interests – either directly or indirectly – in any enterprise or entity thatcompetes with the Company. Furthermore, during this term, no Founder shall carry out any

activity which competes with the activities of the Company nor shall any such Founder hold

any position in any other entity which competes with such activities. The Parties agree that

the activities of the Company are defined as [ ].

The foregoing notwithstanding, in any event in which a Founder leaves the Company and

engages in an activity which competes with the activities of the Company, but does so in a

territory that is not encompassed or likely to be encompassed by such activities of the

Company, then such Founder shall not be forbidden from so doing, so long as no term of thatFounder’s contractual agreements are violated including but not limited to the assignment of

any intellectual property, the prohibition on disclosure or non-permitted use of trade secrets

or any other portion of this section or this Term Sheet.

While any Founder is with the Company and for a period of 2 years thereafter, and so long as

the Investor holds a shareholding in the Company, the Founders of the Company shall not

solicit or attempt to solicit for any other employment, any employee or exclusive agent of

the Company.

It is expressly acknowledged and understood that the nature and intent of this section issolely for the purpose of maintaining the stability of the workforce and business of the

Company, to prevent the “raiding” of its agents, and to bar the appropriations of trade

secrets of the Company or the misuse of investment funds or opportunities. The provisions

in this section are intended only to apply to Founders of the company (who for the purposs

of this section are treated as equity shareholders and partners of the Company) and are not

intended nor shall they be used for the purpose of preventing any person from ultimately

working with contacts made during such Founder’s tenure with the Company or from taking

employment with any other person or party, after a reasonable time has passed, whether in

competition with the Company or not.

Governing law

This Term Sheet and the final agreement shall be governed by Hungarian law.

Costs

The Investor shall pay an amount of HUF 80,000 + VAT from the total legal costs in respect of

the investment under this term sheet and also shall pay for the costs of the due diligence (if


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any). All other costs shall be borne by the Company that shall be paid by the Company

following the closing of the transaction.

Non-binding term sheet

This Term Sheet is non-binding on the Parties. The Parties do not see this Term Sheet as a

pre-contract, and this Term Sheet does not create legally enforceable obligations on the

Parties, except for the no shop obligation, which a binding obligation of the Founders.

According to the mutual intention of the Parties, this Term Sheet does not include all terms

and conditions of the final investment agreement.

Date: Budapest, ….…………….……..

____________________________ ____________________________

____________________________ ____________________________


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Annex No. 1

Cost plan of the Company for the first two (2) years

[…]


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Annex No. 2

Capitalisation table of the Company

Type of quota Shareholding (%)

Common […] Common […]

Common […] Preferred […]

Vanilla Term Sheet Kft VEN

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