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SCG-535 November 15, 2017 SCOTT LENET LAJU OBASAJU SELINA TROESCH Rebel Technologies Series Seed Negotiation: Emperor Information Public Information Profile of Emperor Ventures Emperor Ventures (“EV”) is a San Francisco-based venture capital firm with $250 million under management. The funds under management are organized in the form of three limited partnerships whose investors represent a broad range of institutional planned sponsors (public and corporate pension funds) and high net worth family offices. The firm specializes in media, communications, networking, and software investments, and the group has established a reputation as an aggressive and knowledgeable investor in cutting edge technologies. EV’s Managing Partner, Garth Sidwell, is internationally known, regularly appearing on the popular reality show Shark Wars, where entrepreneurs compete to receive investment offers from venture capitalists. Sidwell and EV also gained attention as the Series A investors for the startup that released Forest Moon, an augmented reality app based on a once-popular children’s cartoon. The game was lauded for encouraging people to leave the house in search of elusive characters. Forest Moon “went viral” with over 500 million downloads. EV is now looking to make a splash in the world of virtual reality by investing in the “next big thing.” However, Sidwell is wary of investing in an unproven platform and seeks to find a startup that, while still at the seed stage, has demonstrated at least some proof of concept and the potential to dominate in the nascent VR market. With a preference to be the initial and sole professional investor, EV typically places $2 million to $4 million in private, high-growth technology companies with the aim to sell or go public within a three to seven-year time frame. EV generally desires to invest for significant minority equity stakes, and actively manages its portfolio companies. The firm has four partners who manage EV’s fifteen current portfolio companies, usually through a role at the Board of Directors level. EV’s youngest partner, Anna Kincaid, was recently promoted following the successful sale of Saber, a portfolio investment that she championed, to Admiral, PLC. This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information Profile of Rebel Technologies Rebel Technologies (“Rebel”) is a new virtual reality game development studio launched by a group of computer science veterans. Rebel’s founder and CEO, Amy Dale, earned a PhD in computer science from USC, and previously worked as a software engineer for a successful public Silicon Valley firm, Republic, Inc. During this stint in Silicon Valley, Dale developed a successful music-trivia mobile app game, Cantina, which was eventually sold to a New York-based startup Solar, Inc. Dale subsequently joined Solar, gaining substantial startup experience, but eventually left to start another independent venture. Capitalizing on the success of Cantina, Dale joined forces with fellow USC graduate Leia Walker to co-found Rebel. During the last year, Rebel operated off of capital provided by Dale (from the sale of Cantina), and the company is now looking for outside funding for its newest game concept, Cloud City, to be launched on the Millennium platform, a growing entrant in the virtual reality headset market. Cloud City is based on a popular science fiction property; players can complete missions in “social space,” competing against friends or other players around the world. While it is proposed to be a “freemium” app (meaning that the initial download is free for consumers), Rebel plans that in-app purchases for additional missions, weapons, and space locations will form the basis of significant revenue once the game reaches scale. The two founders currently own 100 percent of the company and hope to grow a large business and sell Rebel to a larger game publisher in the next few years. The CEO believes that a capital infusion of $4 million will enable the firm to penetrate the market and establish Cloud City as the premier social space VR game on the Millennium platform, ahead of many competing companies. Based on projections, Dale and Walker believe that they can build and launch the Cloud City product within one year of closing a Series Seed financing for Rebel. The budget includes an allocation for marketing the game, but also assumes that Rebel will work with an established publishing partner like Parsec Arts. Rebel is a seed stage company and has not generated any revenue to date. Term Sheet Issues under Negotiation After initial meetings and some preliminary due diligence, Emperor Ventures is prepared to approach Rebel Technologies with an agreement which will outline the terms and conditions of their proposed equity investment. The issues to be negotiated include: • The capital investment that EV will provide to Rebel for the Cloud City development and launch; • The equity stake that EV will receive in exchange for its capital investment; • The type of security EV will receive for its investment; • Whether EV will receive a seat on Rebel’s board of directors and who will serve on the board; • The size of Rebel’s option pool; and • Vesting provisions for Rebel’s founders (you can record all results on the “Term Sheet Summary” at the end of this document) Scott Lenet, Adjunct Professor of Entrepreneurship, prepared this case with the assistance of Case Fellow Laju Obasaju and Selina Troesch. This case and all the people and companies described are fictional. Cases are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources of primary data or illustrations of effective or ineffective management. Copyright © 2017 Lloyd Greif Center for Entrepreneurial Studies, Marshall School of Business, University of Southern California. For information about Greif Center cases, please contact us at [email protected]. This publication may not be digitized, photocopied, or otherwise reproduced, posted or transmitted without the permission of The Lloyd Greif Center for Entrepreneurial Studies. 2 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 The value of Rebel Technologies, and the proceeds to both parties, will be determined by the company's performance. Based on the company's projections, the venture capitalists have prepared three scenarios: a pessimistic case, a base case, and an optimistic case. Each of these appears below: PROJECTED RESULTS FOR REBEL TECHNOLOGIES Pessimistic Case: Acquihire METRIC YEAR 1 YEAR 2 YEAR 3 Headcount 15 20 10 Expenses $1,750,000 $2,000,000 $1,000,000 Downloads - - 100,000 Monthly Active Users (MAUs) - - 20,000 Average Revenue Per User (ARPU) - - $0.208 Annualized Revenues - - $250,000 Exit Multiple n/a n/a 1.0x The pessimistic case assumes that company’s management team is unable to deliver the product on time and that Cloud City never gains meaningful traction in the marketplace. Leia Walker, who is managing development for Rebel, has indicated the market for engineering talent is extremely competitive at the moment, and EV believes that hiring enough software developers is the biggest risk in Rebel’s plan. Given the talent level of the company’s founders, however, the venture capitalists believe that the company may be acquired for its team, even in a pessimistic scenario. In this case, the company will probably be sold for a low revenue multiple, on the order of 1.0x. PROJECTED RESULTS FOR REBEL TECHNOLOGIES Base Case: Trade Sale (Low) METRIC YEAR 1 YEAR 2 YEAR 3 Headcount 20 28 40 Expenses $2,750,000 $4,000,000 $6,000,000 Downloads - 800,000 2,000,000 Monthly Active Users (MAUs) - 150,000 400,000 Average Revenue Per User (ARPU) - $0.208 $0.417 Annualized Revenues - $2,000,000 $10,000,000 Exit Multiple n/a 2.0x 2.5x The base case assumes that company’s management team delivers the product on schedule and that Cloud City becomes a reasonably popular game. In this scenario, expenses are front-loaded to 3 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information facilitate hiring a sufficiently talented software development team, and the game delivers enough revenue to help the company become cash flow positive following launch. Following launch, Rebel continues to hire additional staff to support the growth of the game, and re-invests any profits into marketing, to attract additional users. In the base case, the company would probably be an attractive acquisition for a private, medium-sized developer like Ion Corporation Ltd or Blaster Games. In this outcome, the company will probably be sold for an average revenue multiple for game companies, between 2.0x-2.5x. PROJECTED RESULTS FOR REBEL TECHNOLOGIES Optimistic Case: Trade Sale (Premium) METRIC YEAR 1 YEAR 2 YEAR 3 Headcount 25 40 120 Expenses $3,000,000 $6,000,000 $30,000,000 Downloads - 2,000,000 13,800,000 Monthly Active Users (MAUs) - 400,000 2,300,000 Average Revenue Per User (ARPU) - $0.417 $0.377 Annualized Revenues - $10,000,000 $62,500,000 Exit Multiple n/a 3.0x 4.0x In the optimistic case, the company’s management team delivers the product on schedule and Cloud City becomes a bona fide hit. In this scenario, expenses are even more front-loaded to facilitate hiring a sufficiently talented software development team, and the game delivers enough revenue for the company to become very profitable following launch. Based on the success of the game, Rebel continues to hire additional staff in all departments to support the growth of the game, and conducts a national advertising campaign with a leading agency like Orbit Marketing. In the optimistic case, the company is highly sought after as an acquisition by every significant player in the industry, including Ion Corporation Ltd, Blaster Games, Parsec Arts, and many others. In this outcome, based on revenue growth and market dominance, the company will be sold for a high revenue multiple for game companies, in the neighborhood of 4.0x. A sample term sheet prepared by the law firm of Gunray, Cannon & La Force is attached. Garth Sidwell has worked with this firm for many years, and Gunray typically represents Emperor Ventures when negotiating with prospective portfolio companies. This term sheet illustrates the issues in this case, along with many other real life negotiation points that are relevant when considering a capital investment from a professional venture investor. 4 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 Emperor Ventures: Confidential Information You are Anna Kincaid, a junior partner at Emperor Ventures. You are evaluated by the financial performance of your investments. Your job is to negotiate a good deal with Amy Dale, the founder of Rebel Inc., and maximize the opportunity for EV to profit from the deployment of your capital investment. Rebel is a very attractive seed stage company, but every investment represents an opportunity cost for the firm, so the transaction structure must be attractive, too. If you do not come to an agreement with Rebel, another of the partners in your firm is eager to do a deal with a competing virtual reality app developer called Galaxy. Because your bonus is contingent on putting capital to work, your best alternative to a negotiated agreement (“BATNA”) is zero. Your upside is uncertain, because neither you nor the company truly knows what will happen once the investment is made, and the scenarios you generated during due diligence are really just an educated guess. They are your best guide, however, so use your scenario analysis (in the tables above) to determine potential payoffs for Emperor Ventures under various liquidity conditions, and value Rebel accordingly. While crafting a term sheet agreement with Rebel Technologies CEO, remember that you will have to work together with the firm to achieve common goals once the negotiation is complete. Capital Investment Emperor Ventures, which manages $250 million, typically invests between $2 to $4 million initially in each deal. The fund also likes to keep reserves for follow-on rounds, with a total allocation of $5 million per portfolio company on average. EV’s General Partners are very impressed by Rebel’s technology and management team, and believe that Cloud City could be a hit on the Millennium platform. As a result, the partnership would like to secure a significant minority equity position in exchange for capital that helps the company accomplish its goals. Generally speaking, Sidwell has trained you to provide “tough love” to entrepreneurs, so you are debating whether it makes sense to fund the full $4 million requested by Dale, or to “drip irrigate” the company by providing a smaller investment up front and see how the company performs. After all, you can always provide additional capital later, potentially on even more attractive terms. On the other hand, you recognize the importance of Rebel having enough capital to attract a quality team. EV will invest in Rebel only if the company agrees to accept at least a $2 million investment, which is the fund’s minimum. Equity Stake EV invests for significant minority equity stakes. Your firm typically requires a seat on the board of directors of the companies in which it invests, so you want to own enough of Rebel that the founders will listen to your advice. Anything less than 10 percent is unacceptable, and naturally you want to maximize your equity stake for any given level of capital investment. You prefer to own less than 50 percent of your portfolio firms, however, to avoid motivation problems—you don't want the founder to be working for you, you want to work together. At least, that’s what the fund’s marketing materials say. You believe Rebel’s CEO wants a pre-money valuation of at least $20 million. If you agree to invest $4 million, that would imply a post-money value of $24 million, and a 16.7 percent stake for Imperial. You believe you can do better, but negotiating your equity stake is always the most difficult and least structured aspect of completing a term sheet agreement. 5 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information Security Type EV typically purchases convertible preferred securities when it invests in a portfolio company. Convertible preferred stock provides EV with a security which is senior to the common stock held by company founders. Previously, EV has been successful in purchasing “participating preferred” securities from portfolio companies. Participating preferred stock allows EV to recapture its capital investment before sharing, on a pro rata basis, in the upside produced by a portfolio company through a sale or IPO. VCs often refer to participating preferred as “one for me, none for you; one for me, one for you” to describe the liquidation preference waterfall. The participating preferred security is very attractive to EV in protecting against unfavorable outcomes, and the fund would like to buy such a security from Rebel if possible. However, the participation feature is really no longer a market term. On the other hand, EV is willing to agree to a cap of between 2x to 4x the liquidation preference (the amount preferred investors receive “off the top” before other shareholders receive any proceeds), after which the participation feature would go away. This would also protect EV’s downside and might satisfy Rebel. Amy Dale has suggested that EV purchase ordinary common stock. Garth Sidwell would find such a structure unacceptable. Board Role and Composition EV has a reputation as a helpful investor, and you have observed during your career that good advice from a well-connected director can make a difference. The fund usually receives a seat on the Board of Directors of its portfolio companies. While EV General Partners do not interfere with the day-to-day operations of their companies, they try to help by recruiting the senior management team, making introductions for business development deals, preparing the team for further fundraising, and managing exit strategies. Rebel’s founder has a reputation for being bold. Dale has specifically requested that Garth Sidwell serve on Rebel’s board or that EV might not receive any board seat at all. However, you aren’t sure if you have successfully communicated the value you can personally bring to the table. You also want to serve on the board of directors because you are trying to establish your reputation in EV. Even though you have recently been promoted to partner, you are really in the shadow of your mentor, Garth Sidwell. You believe that if Sidwell takes the board seat, there is a chance he may take all the credit for the success of the deal. On the other hand, Sidwell has deep experience in gaming and augmented reality, and his track record and relationships may be key to Rebel’s success. If you don’t get at least an observer role for yourself on the board of directors for EV, it will be embarrassing. Garth Sidwell does not take observer seats. Option Pool EV generally likes to keep the unallocated option pool—the shares of its portfolio companies that are set aside by the companies in order to hire and retain employees—at the industry standard of 20 percent. Otherwise, “refreshing” the option pool later will create additional dilution for EV. Amy Dale will likely try to negotiate this percentage below the standard, to share dilution with the current round investors later on. You are not willing to kill the deal over the size of the option pool, but you prefer to keep it as close to 20 percent as possible, to attract great technology and management talent. Vesting Provision Amy Dale worked in other startups prior to starting Rebel, and there is always a risk that she might leave to develop the “next big thing” at another new company. To mitigate this risk, EV generally creates a vesting schedule for its portfolio companies’ founders. This ensures that the key team members will have the incentive to remain with their companies for a number of years. While options represent a right to purchase stock and vest over time, founders actually “reverse-vest”: that is, the company has a right to repurchase the founder’s restricted stock for a nominal amount, and 6 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 that right goes away over time. It is normal to give founders some credit for the amount of time they have already been working at the startup, which is one year in the case of Rebel. However, the longer you can make the vesting provision, the more the founder will feel locked in. You would like the founders’ vesting schedule to match the employee option vesting, which is four years with a one year cliff, and 1/48th vesting monthly thereafter. You believe that Amy Dale and Leia Walker are against the idea of any founder vesting at all. The lack of a vesting schedule would be a deal killer for you. PHOTO CREDIT: Case cover photo from iStockPhoto by Getty Images. 7 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information REBEL TECHNOLOGIES–EMPEROR VENTURES: Detailed Term Sheet SALE OF SERIES A PREFERRED STOCK REBEL TECHNOLOGIES SUMMARY OF TERMS THIS TERM SHEET SUMMARIZES THE PRINCIPAL TERMS OF A PROPOSED SERIES A PREFERRED STOCK FINANCING OF EQUITY SECURITIES IN REBEL TECHNOLOGIES (THE “COMPANY”). EXCEPTING ARTICLE VI.A, THIS TERM SHEET IS FOR DISCUSSION PURPOSES ONLY; THERE IS NO OBLIGATION ON THE PART OF ANY NEGOTIATING PARTY UNLESS A DEFINITIVE STOCK PURCHASE AGREEMENT IS SIGNED BY ALL PARTIES. THIS TERM SHEET IS NOT A COMMITMENT TO INVEST, AND IS CONDITIONED ON THE COMPLETION OF DUE DILIGENCE, LEGAL REVIEW AND DOCUMENTATION THAT IS SATISFACTORY TO THE INVESTORS. THIS TERM SHEET SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF DELAWARE. I. SECURITIES A. AMOUNT AND INVESTORS: Emperor Ventures (“EV”) will lead a transaction in which EV and its Investor Group (the “Investor Group”) will invest a total of $________ million B. TYPE OF SECURITY: Series A Preferred Stock (the “Preferred Stock”) C. PRICE PER SHARE: $_______ (the “Series A Original Purchase Price”) D. CAPITALIZATION: Emperor Ventures understands the capitalization of the Company to be 1,000,000 total pre- financing fully-diluted Common shares and options fully owned by the Founder. This financing consists of up to _____ shares of Preferred Stock to Emperor Ventures for a Grand total of _____. The post-money valuation of the Company is $_____ and $____ purchases ____% of the Company in Preferred Stock The unallocated employee pool will be approximately ____% of the fully diluted capitalization of the Company. II. STOCK PURCHASE RIGHTS A. RIGHT OF FIRST REFUSAL: The Preferred Stock Investors shall have the right, in the event the Company proposes an equity offering of any amount to any person or entity (other than for a strategic corporate partner, employee stock grant, equipment financing, acquisition of another company, shares offered to the public pursuant to an underwritten public offering, or other conventional exclusion), to purchase up to a pro rata portion of such shares. If a Preferred Stock Investor chooses not to exercise their right of first offer, the other Preferred Stock investors and/or their affiliated funds have the right to expand their investments to fill the gap. The Company has an obligation to notify all Preferred Investors of any proposed equity offerings of any amount. 8 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 If the affiliated groups of Preferred Investors do not respond within 15 days of being notified of such an offering or decline to purchase all of such securities, then that portion which is not purchased may be offered to other parties on terms no less favorable to the Company for a period of 120 days. Such right of first offer will terminate upon an underwritten public offering. In addition, the Company will grant the Preferred shareholder any rights of first refusal or registration rights granted to subsequent purchasers of the Company’s equity securities to the extent that such subsequent rights are superior, in good faith judgment of the Company’s Board of Directors, to those granted connection with this transaction. B. COMMON STOCK: The Company’s bylaws shall contain a right of first refusal on all transfers of Common Stock, subject to normal exceptions. If the Company elects not to exercise its right, the Company shall assign its right to the Investors. C. RIGHT OF ASSIGNMENT: Each of the Investors shall be entitled to transfer all or part of its shares of Preferred purchased by it to one or more affiliated partnerships or funds managed by it or any of their respective directors, officers, or partners, provided such transferee agrees in writing to be subject to the terms of the Stock Purchase Agreement and related agreement as if it were a purchaser thereunder. D. REDEMPTION: The Preferred Stock shall be subject to redemption in years __, ___, and ___ at the greater of fair market value or cost. III. REGISTRATION RIGHTS A. DEMAND RIGHTS: If investors holding at least 50 percent of Series A Preferred (or Common issued upon conversion of the Preferred or a combination of such Common and Preferred) request that the Company file a registration Statement for at least 20 percent of their shares (or any lesser percentage if the anticipated gross receipts from the offering exceed $2,000,000), the Company will use its best efforts to cause such shares to be registered; provided, however, that the Company shall not be obligated to effect any such registration prior to the earlier of ________________, or within one year following the effective date of the Company’s initial public offering (“IPO”). The Company shall not be obligated to effect more than two registrations under these demand rights and provisions. B. PIGGYBACK RIGHTS: The holders of Registrable Securities will be entitled to “piggyback” registration rights on all registration statements of the Company or on demand registrations of any later round investor, subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered on a pro rata basis in view of market conditions and to complete reduction on an IPO at the underwriter’s discretion. No shareholder of the Company shall be granted piggyback registration rights superior to those of the Series A Preferred without the consent of the holders of at least 50 percent of the Preferred Stock (or Common issued upon conversion of the Preferred Stock or a combination of such Common and Preferred). C. S-3 RIGHTS: Investors shall be entitled to an unlimited number of demand registrations on form S-3 (if available to the Company) so long as such registration offerings are in excess of $1,000,000; 9 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information provided, however, that the Company shall only be required to file two Form S-3 Registration Statements on demand of the Preferred every 12 months. D. EXPENSES: The Company shall bear registration expenses (exclusive of underwriting discounts and commissions and special counsel of the selling shareholders) of all demands, piggybacks, and S-3 registrations. Any expenses in excess of $15,000 of any special audit required in connection with a demand registration shall be borne pro rata by the selling shareholders. E. OTHER PROVISISONS: The registration rights may be transferred, provided that the Company is given written notice thereof and provided that the transfer: a) is in connection with a transfer of all securities if the transferor; b) involves a transfer of at least 100,000 shares; or c) is to constituent partners or shareholders who agree to act through a single representative. Other provisions shall be contained in the Purchase Agreement with respect to registration rights as are reasonable, including cross-indemnification, the period of time in which the Registration Statement shall be kept effective, standard standoff provisions, underwriting arrangements and the ability of the Company to delay demand registrations for up to 90 days (S-3 Registrations for up to 60 days). F. VOTING RIGHTS: Holders of Preferred Stock will have a right to that number of votes equal to the number of shares of Common Stock on an as-if-converted basis. G. CO-SALE AGREEMENT: The shares of the Company’s securities held by the Founders shall be made subject to a co- sale agreement (with certain reasonable exceptions) with the Investors, such that the Founders may not sell, transfer, or exchange their stock unless each Investor has an opportunity to participate in the sale on a pro rata basis. This right of co-sale shall not apply to and shall terminate upon a qualified IPO. IV. BOARD OF DIRECTORS RIGHTS A. COMPOSITION: The Board of Directors will consist of ___ seats. Emperor Ventures will have the right to elect ___ members to the Company’s Board of Directors (initially ____). The Company’s Chief Executive Officer will also serve as a Director. The additional Directors will be representatives mutually agreeable to the Company’s existing Directors and the Preferred Stock investors. EV will also have board visitation rights for its other partners. Direct travel costs incurred by EV's appointed Board members for the purpose of attending the Board meetings and conducting other company business will be borne by the Company. B. INDEMNIFICATION: The bylaws and any other charter documents of the Company shall limit the liability and exposure to damages of members of the Board of Directors to the broadest extent permitted by applicable law, using a form of indemnification acceptable to Directors. C. LIQUIDATED PREFERENCE: In the event of any liquidation or winding up of the Company, the holders of Preferred Stock will be entitled to receive in preference to the holders of Common Stock an amount equal to the Original Purchase Price per share, plus all declared but unpaid dividends, if any. Any remaining proceeds shall be allocated between the Common and the Preferred on a pro-rata basis, treating the Preferred on an as-if-converted basis. 10 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 A merger, acquisition, or sale of substantially all of the assets of the Company in which the shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed a liquidation. D. CONVERSION: The Series A Preferred initially converts 1:1 to Common Stock at any time at option of holder, subject to adjustments for stock dividends, splits, combinations and similar events and as described below under “Antidilution Provisions.” Each share of Series A Preferred will be automatically converted into Common Stock at the then applicable conversion rate in the event of: (i) the closing of an underwritten public offering of shares of Common Stock of the Company at a public offering price per share (prior to underwriting commissions and expenses) that values the Company at least $100 million in an offering of not less than $30 million, before deduction of underwriting discounts and registration expenses; or (ii) approval of 60 percent of the Preferred Stock. E. ANTIDILUTION: Proportional antidilution protection for stock splits, stock dividends, combinations, re- capitalizations, etc. The conversion price of the Preferred shall be subject to adjustment to prevent dilution, on a weighted average basis, in the event that the Company issues additional shares of Common or Common equivalents (other than reserved employee shares) at a purchase price less than the applicable conversion price. F. DIVIDENDS: The holders of Preferred Stock shall be entitled to receive dividends at a rate of 8 percent per annum in preference to any dividend on Common Stock, whenever funds are legally available, when, if, and as declared by the Board of Directors. Dividends shall be non- cumulative. V. COVENANTS A. RESTRICTIONS & LIMITATIONS: So long as Series A Preferred Stock remains outstanding, the Company shall not, without the vote or written consent of at least a majority of the Preferred shareholders, take any action that would: (i) alter or change the rights, preferences, or privileges of the Series A Preferred; (ii) authorize or issue any equity security senior to or on a party with a Series A Preferred as to dividend rights, redemption rights or liquidation preferences; (iii) amend or waive any provision of the Company’s Articles of Incorporation or Bylaws in a manner that would alter or change the rights, preferences or privileges of any Preferred Stock without the approval of at least a majority of the Preferred shareholders; (iv) increase or decrease the authorized number of shares of Common or Preferred Stock; (v) result in the redemption or repurchase of any shares of Common Stock (other than pursuant to equity incentive agreements with service providers giving the Company the right to repurchase shares upon the termination of services); (vi) result in any merger, consolidation, or other corporate reorganization, or any transaction or series of transactions in which excess of 50 percent of the Company’s voting power is transferred or in which all or substantially all of the assets of the Company are sold; (vii) increase or decrease the authorized size of the Company’s Board of Directors, except with approval of the Board, including the Series A Preferred representatives; (viii) result in the payment or declaration of any dividend on any shares of Common or Preferred Stock; or (ix) result in the issuance of debt in excess of $100,000, except with approval of the Board, including the Series A Preferred representatives. 11 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information B. INSURANCE: The Company will obtain key person life insurance, payable to the Company for $1 million. The Company will also maintain D&O insurance acceptable to the investors. C. REPRESENTATIONS & WARRANTIES: The investment shall be made pursuant to an Investment Agreement reasonably acceptable to the Company and the Investors, which agreement shall contain, among other things, appropriate representations and warranties of the Company with respect to patents, litigation, previous employment, and outside activities, covenants of the Company reflecting the provisions set forth herein, and appropriate conditions of closing, including an opinion of the counsel for the Company. D. VESTING: Unless the Board determines otherwise, all founders’ and employees’ Common Stock and options shall vest as follows: 25 percent at the end of the first year of full-time employment following the closing of the financing contemplated by this term sheet and at a rate of 1/36th of the remaining amount per month thereafter such that the entire stock option grant vests in its entirety over a period of four years. In general, there shall be no accelerated vesting of Common Stock in the event that the Company is acquired or merged. All unvested Common shares shall be re-purchasable at cost by the Company upon the termination of employment for any reason. E. COMPENSATION: No Company employee shall receive annual compensation in excess of $100,000 (except those receiving commissions from approved compensation plans) without consent of the Board of Directors or Compensation Committee, if any, until the Company is merged, sold, or completes an IPO. Any and all accruals shall be forgiven by the founders and employees prior to this financing. All employees are employed by the Company “at will” – no employment contracts will be granted without the unanimous consent of the Board of Directors. F. PROPRIETARY INFORMATION & INVENTIONS AGREEMENT: Each officer, director, and employee of the Company shall have entered into a proprietary information and inventions agreement in a form reasonably acceptable to the Company and the Investors. Each key technical employee shall have executed an assignment of inventions acceptable to the Company and Investors. Each founder will have made appropriate representations and warranties as to no-conflict with prior employers. G. INFORMATION RIGHTS: So long as an investor continues to hold at least 100,000 shares of Preferred Stock or Common (a “Major Investor”), the Company shall deliver to the Investor the Company’s annual budget, as well an audited annual and unaudited quarterly and monthly financial statements. Furthermore, as soon as reasonably possible, the Company shall furnish a report to each Major Investor comparing each annual budget to such financial statements. Each Major Investor shall also be entitled to standard inspection and visitation rights. These provisions shall terminate upon a qualified IPO. VI. CLOSING A. NO SHOP AGREEMENT: For a period of forty-five (45) days following the acceptance of this term sheet, the Company shall not solicit other potential investors nor disclose the terms of this Term Sheet to other persons (other than in connection with consummation of this transaction) nor engage in any 12 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

Rebel Technology Series Seed Negotiation: Emperor Information SCG-535 discussions or execute any agreements related to the sale or transfer of a significant portion of the Company’s assets or securities to any other party other than the Investors until after the signing of definitive documents memorializing the provisions herein. Should both parties agree that definitive documents shall not be executed pursuant to this term sheet, the Company shall have no further obligations under this section. B. CLOSING: Subject to the satisfactory completion of due diligence, the closing of this transaction will be on or before __________________________. C. LEGAL FEES & EXPENSES: The Company shall bear its own fees and expenses and shall pay at the closing the reasonable fees and expenses (not to exceed $15,000) of the Preferred Investors’ respective legal firms if any transactions contemplated by this term sheet are actually consummated. Investors’ counsel shall draft the definitive stock purchase agreement and other needed legal documentation. In addition, the legal fees and expenses of the Company shall not exceed $10,000. The foregoing Summary of Terms sets forth the good faith agreement of the parties set forth below. This offer expires on ____________ at 5:00 p.m. EST. AGREED AND ACCEPTED: EMPEROR VENTURES REBEL TECHNOLOGIES By: By: Date: Date: 13 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

SCG-535 Rebel Technology Series Seed Negotiation: Emperor Information REBEL TECHNOLOGIES–EMPEROR VENTURES: Term Sheet Summary NEGOTIATED TERM AGREEMENT 1. Capital Investment ($M) $ 2. Equity Stake % 3. Security Type 4. Board Representative 5. Option Pool Size % 6. Founder Vesting Provisions AGREED AND ACCEPTED: ______________________________ _______________________________ for REBEL TECHNOLOGIES for EMPEROR VENTURES 14 This document is authorized for use only by Tien Nguyen ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.