Term sheet for investment through CCDs

TERM SHEET

FOR PROPOSED INVESTMENT BY WAY OF COMPULSORILY CONVERTIBLE DEBENTURES (CCDs)

THIS TERM SHEET sets out the principal terms on which the Investor proposes to subscribe to compulsorily convertible debentures ("CCDs") of the Company. This Term Sheet is indicative and non-binding, except for the provisions expressly stated to be binding under "Binding Provisions" below.

(a) The Company is a private limited company incorporated under the Companies Act, 2013, having CIN Company CIN and registered office at Registered office address.

(b) The Investor intends to invest an amount of Investment amount (Rupees Investment amount in words only) in the Company by way of subscription to CCDs.

(c) This Term Sheet shall form the basis for definitive agreements to be negotiated and executed between the parties.

(a) The investment shall be made by way of Number of CCDs compulsorily convertible debentures of face value Face value per CCD each, aggregating to Investment amount.

(b) The CCDs shall be issued as fully paid-up, non-participating, unsecured, and shall be compulsorily convertible into fully paid-up equity shares of the Company, in the manner set out below.

(c) The CCDs shall be listed as "non-convertible debentures (compulsorily convertible)" for income-tax purposes and shall not carry any coupon or interest, save as stated in paragraph 6.

(a) The CCDs shall be converted into equity shares at a price of not more than the Fair Value determined by a registered valuer as on the date of issue, in compliance with Rule 13(2) of the Companies (Share Capital and Debentures) Rules, 2014, and Section 62(3) of the Companies Act, 2013.

(b) Conversion shall occur on the earlier of: (i) the expiry of Conversion period from the date of allotment, or (ii) the occurrence of a Qualifying Event.

(c) "Qualifying Event" means an IPO, merger or amalgamation, or a sale of substantially all the assets or undertaking of the Company.

(d) In the event of conversion into equity shares, the Investor shall be issued equity shares of the class stated in paragraph 7, subject to receipt of all approvals and compliances under the Companies Act, 2013, the Foreign Exchange Management Act, 1999 and rules thereunder (if the Investor is a non-resident), and other applicable law.

(a) The conversion ratio shall be such that the Investor, upon conversion, holds equity shares equivalent to Target shareholding percentage of the issued and paid-up equity share capital of the Company on a fully diluted basis, subject to adjustment as per paragraph 5.

(b) Pre-conversion, the CCD holders shall rank pari passu with unsecured creditors and shall not be entitled to vote except as permitted by law.

(a) If the Company issues new equity shares or securities convertible into equity shares at an effective price lower than the conversion price of the CCDs, the conversion price shall be adjusted on a {{weighted_average / full_ratchet}} basis.

(b) Adjustments shall not apply to shares issued under employee stock option plans approved by the Board, bonus issues, or shares issued pursuant to a merger or acquisition approved by the Investor.

(a) The CCDs shall not carry any coupon. To protect the Investor's expected returns, the conversion price shall be subject to an IRR-based accrual of IRR per annum per annum on the subscription amount, such that upon conversion the Investor receives equity shares of an aggregate Fair Value not less than the subscription amount compounded at the stated IRR, provided that no CCD shall be redeemed in cash, and all returns shall be realised only by way of conversion into equity shares or upon a permitted exit, in compliance with Section 62(3) of the Companies Act, 2013.

(b) No floor price, guaranteed return, or assured exit amount shall be payable to the Investor by the Company out of its own funds, save as permitted under applicable law including the foreign exchange regulations applicable to the Investor (if applicable).

(a) Upon conversion, the Investor shall be issued Class of shares on conversion.

(b) The parties shall execute a Shareholders' Agreement ("SHA") and the Company shall amend its Articles of Association ("AoA") to grant the Investor, upon conversion, the rights set out in the SHA and AoA, including those in paragraphs 8 to 12 below.

(a) The Investor shall have the right to nominate Number of investor nominees nominee(s) to the Board of Directors of the Company.

(b) Prior written consent of the Investor nominee(s) shall be required for the following Reserved Matters: (i) amendment of the memorandum or articles; (ii) issue of further securities; (iii) change in the nature of business; (iv) related party transactions exceeding Related party transaction threshold; (v) declaration of dividends; (vi) borrowing above Borrowing threshold; (vii) winding up, liquidation or reorganisation; (viii) approval of annual budgets materially deviating from the approved budget; (ix) appointment or removal of key managerial personnel; and (x) any other matter specified in the SHA.

The Company shall provide the Investor, within the stipulated time: (a) unaudited quarterly financial statements within Days for quarterly financials days of quarter end; (b) audited annual financial statements within Days for audited annual financials days of the end of each financial year; (c) the annual budget within Days for annual budget days of the end of each financial year; and (d) immediate notice of any litigation, regulatory action, or default materially affecting the Company.

(a) The Investor shall have a right of first refusal on any proposed transfer of equity shares by the Founders, on the terms set out in the SHA.

(b) The Investor shall have pro rata participation rights in future equity issuances to maintain its shareholding.

(a) The Investor shall have customary exit rights, including: (i) a right to participate in an IPO with customary lock-up limits; (ii) tag-along rights in transfers by the Founders; (iii) drag-along rights to the extent the Investors holding Drag-along threshold of the CCDs/equity so require; and (iv) a right to require an exit upon a Change of Control or upon breach of the SHA, in each case structured in compliance with applicable law, with any purchase of the Investor's securities by the Promoters being funded from their own funds and not from the funds of the Company.

Upon any winding up, liquidation, or deemed liquidation event, the Investor shall be entitled to receive, prior and in preference to the equity shareholders, an amount equal to Liquidation preference multiple times the subscription amount plus accrued entitlements under paragraph 6, subject to such preference being implemented in a manner compliant with the Companies Act, 2013 and applicable insolvency law, and without any assured return payable by the Company from its own funds.

The investment shall be subject to satisfaction or waiver of the following conditions precedent:

(a) satisfactory completion of legal, financial and business due diligence of the Company;

(b) approval of the Board of Directors and shareholders of the Company of the CCD issue, including by way of a special resolution under Section 62 of the Companies Act, 2013;

(c) receipt of a valuation report for the CCDs from a registered valuer;

(d) receipt of approvals under the Foreign Exchange Management Act, 1999 and the Foreign Direct Investment policy (if applicable);

(e) no material adverse change in the business, assets or prospects of the Company; and

(f) execution of the SHA, the Debenture Subscription Agreement and the amended AoA.

The Company shall make customary representations and warranties regarding due incorporation, capitalisation, title to assets, intellectual property, litigation, tax, employment, and compliance with law, together with covenants customary for transactions of this nature, all as detailed in the definitive agreements.

(a) The CCDs shall be issued in accordance with Section 42 and Section 71 of the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014, including through a private placement offer letter in Form PAS-4 and a record of allotment in Form PAS-5, with return of allotment filed in Form PAS-3 within the prescribed time.

(b) The parties shall comply with applicable stamp duty under the Indian Stamp Act, 1899 and the stamp legislation of State for stamp duty.

(c) If the Investor is a non-resident, the transaction shall comply with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and pricing guidelines for CCDs, and reporting in Form FC-GPR/FC-TRS as applicable.

(a) The Company shall pay the Investor a transaction fee of Transaction fee (if applicable) and reimburse the Investor's reasonable legal and due diligence costs up to Cost reimbursement cap, against tax invoices, subject to applicable withholding under the Income-tax Act, 1961.

(b) Each party shall bear its own costs otherwise.

The parties shall keep the terms of this Term Sheet and all information exchanged confidential, save for disclosures to advisers, affiliates, financiers, or as required by law or any regulatory authority.

For a period of Exclusivity period from the date hereof, the Company shall not solicit, negotiate or enter into discussions with any other party regarding any investment in or sale of the Company or its securities, without the prior written consent of the Investor.

Paragraphs 18 (Confidentiality), 19 (Exclusivity), 21 (Governing Law and Dispute Resolution), and 23 (Miscellaneous) of this Term Sheet shall be legally binding. All other provisions are indicative, non-binding and subject to the execution of definitive agreements.

(a) This Term Sheet and the definitive agreements shall be governed by the laws of India.

(b) Any dispute arising out of or in connection with this Term Sheet shall be referred to arbitration under the Arbitration and Conciliation Act, 1996, by a sole arbitrator mutually appointed by the parties, seated at Arbitration seat, and conducted in English. The award shall be final and binding. Subject thereto, the courts at City of exclusive jurisdiction shall have exclusive jurisdiction.

This Term Sheet shall stand terminated upon the earlier of: (a) execution of the definitive agreements; (b) expiry of Term sheet validity period from the date hereof, unless extended in writing; or (c) mutual written agreement of the parties.

(a) This Term Sheet may be amended only in writing signed by both parties.

(b) Notices shall be in writing and delivered to the addresses stated above by hand, registered post or email, and shall be effective upon receipt.

(c) This Term Sheet does not create any partnership, agency or joint venture between the parties.

IN WITNESS WHEREOF the parties have executed this Term Sheet on the date first written above.

For and on behalf of Company name: For and on behalf of Investor name:

Company signatory name: Investor signatory name

Designation: Company signatory designation: Designation: Investor signatory designation

Signature:   : Signature:  

Date: Company signature date: Date: Investor signature date

Witness 1: Witness 1 name | Witness 2: Witness 2 name