Download the PDF of the Term Sheet here: https://www.chisos.io/resources/download-open-source-term-sheet
This document is intended to serve as a starting point only, and should be revised to meet your specific requirements. This document contains optional provisions that should be carefully considered after consulting with your attorney.
Chisos does not assume responsibility for the contents of, or the consequence of using, any version of the CISA or any other document provided on our website. These forms and the law surrounding the income sharing agreements is complex, and this form may not work in every situation or jurisdiction, so before using you should consult with a lawyer licensed in your jurisdiction.
This CISA Term Sheet Template is not being provided in the course of an attorney-client relationship and is not intended to be legal advice. This CISA should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction. Chisos and its affiliates expressly disclaims any responsibility for any consequence of using the CISA or any related document, or any other document contained on the Chisos website.
TERM SHEET FOR
INCOME SHARE AGREEMENT
BETWEEN [INVESTOR NAME] AND [COMPANY NAME]
[Date]
The following is a summary of the principal terms with respect to the proposed financing of [COMPANY NAME], a [STATE] [ENTITY TYPE] (the “Company”). Except for the section entitled “Confidentiality,” this summary of terms does not constitute a legally binding obligation. The parties intend to enter into a legally binding obligation only pursuant to definitive agreements to be negotiated and executed by the parties.
| Investor | [INVESTOR NAME] |
|---|---|
| Amount of Investment | [_________] |
| Founder | “Founder” means [NAME]. |
| Repayment Cap | The Repayment Cap will be [__]X the investment amount. |
| The Percentage | The Percentage of Founder’s income share shall be [_]%. |
| Repayment Period | [___] months. |
| Income Share | Within 10 days of the end of each month, the Founder will arrange for the payment to the Investor of a Percentage of the Founder Earnings for the preceding month, over the Repayment Period or until the Investor has received the Repayment Cap. |
| Founder Earnings | Founder Earnings means the personal wage or self-employment income of Founder. Founder shall provide Investor with a copy of Founder’s Form W-2, Form 1099, Schedule K-1, or annual pay stub to permit Investor to verify the Founder Earnings during the Repayment period and any deferment period. |
| Early Repayment; Grace Period | The Founder shall have the ability to make additional prepayments in any period towards the Repayment Cap. In the event Founder repays 75% of the initial Repayment Cap (not inclusive of any Repayment Cap reductions) within 60 Months, no further payments shall be due and the Income Share Agreement will be terminated. No payments will be due in any period in which the Founder makes less than $40,000 in Founder Earnings for up to a period of 60 months, provided, however, that utilization of this grace period shall increase the repayment period by the amount of months in which the Founder did not make any payments, and shall eliminate the Founder’s ability to cease payments after meeting the Repayment Cap. |
| Qualified Financing Reduction | The Repayment Cap shall be reduced to the greater of (i) the amount paid to date or (ii) [__]X the investment amount in the event the Company completes a sale of equity securities issued by the Company in an equity financing in which the Company raises at least $[______] (a “Qualified Financing”). |
| SAFE | At the closing of the financing, the Company will issue Chisos a SAFE which will convert into that number of shares sold in a 3rd party equity financing equaling [__%] of the fully diluted capitalization of the Company. |
| SAFE Claw Back | The percentage ownership amount of the SAFE shall be reduced ratably in proportion to the amount Founder has paid towards the Repayment Cap, up to a maximum reduction of 2/3rds of the total percentage ownership granted to Chisos. For example, the repayment of 50% of the Repayment Cap shall result in a 50% reduction, repayment of 70% of the Repayment Cap shall result in a 66.66% reduction. |
| Sale | On a sale of the Company, the Investor is entitled to receive the balance of any remaining payments due towards the Repayment Cap. |
| [Information Rights] | The Investor is entitled to standard information and inspection rights including any records of accounting necessary to verify all payments owed to Investor by the Company or Founder. |
| [Board Observer] | The Investor will be entitled to attend Board Meetings of the Company as an observer upon its request, subject to executing a standard form observer confidentiality agreement. |
| [Participation Rights] | The Investor will have the right to participate on a pro rata basis in subsequent issuances of equity securities, subject to customary exclusions. |
| [Confidentiality] | Without the consent of the Investor, the Company and/or Founder shall not disclose these terms to anyone other than the Company's officers, directors, and key service providers. |
| [Exclusivity] | For a period of 30 days from the signing of this Term Sheet, Company agrees to not solicit, participate in any discussions or negotiations, or enter into any agreement with, or provide any non-public information to, any person or group of persons, relating to or in connection with the financing or the purchase and sale of the equity securities of the Company. |
COMPANY: [__________]
Name: Title: Date: |
INVESTOR: [__________]
Name: Title: Date: |
|---|