Convertible Note Assignment:

Two Co-Founders, which currently own 400,000 shares or 80% of Company NO which is based in Oklahoma City, have been attempting to negotiate a $300,000 Common Stock equity investment from the SeedStep Angels, the Oklahoma state-wide Angel Group, for the last sixty days. The remaining 100,000 shares or 20% are collectively owned by several family members and a couple small individual Angels. Unfortunately despite strong investment interest expressed by both sides, the two sides continue to be at a total impasse regarding the Pre-Money Valuation, even thou both sides have agreed on the vast majority of all the other Terms, including creating a 15% Pre-Money Stock Option Pool.

The SeedStep Angels have insisted, due to the high perceived business risk profile created by the uncertainty around the pending product development activities and the corresponding required governmental regulatory certification, that the Pre-Money Valuation should be $900,000. In sharp contrast, the Co-Founders are totally confident in their technical ability to quickly finish product development within six months and successfully secure regulatory approval over the next six months. Additionally, Company NO applied for a $1 million SBIR federal grant nine months ago and based upon preliminary feedback directly from the Federal agency, the Co-Founders are extremely confident that the Company will be awarded this sizable grant in about three to four months. While this grant funding cannot replace the required current equity capital funding requirements, if awarded this large incremental research funding will enable the Company to accelerate the development of a second product by a couple of years greatly accelerating the revenue growth and diversifying the business risk. As a result of the obvious differences in perception regarding ALL these key near term business milestones and the associated impact on valuation, the Co-Founders strongly believe the current Pre-Money Valuation should be closer to $1,500,000, or 67% higher than proposed by the SeedStep Angel Group.

This current $300,000 equity capital investment will be used to complete, internally test, and secure the key external product certification which is required prior to being able to sell the product to customers, and cover general operating expenses for the next fifteen months. After (if) the product is successfully certified, Company NO will need to raise $1,250,000 via a Series A Preferred, regardless of the interim SBIR grant funding outcome which is limited to the second product research, in order to build product inventory and aggressively launch a regional sales & marketing effort. By successfully completing these three interim business performance milestones, the Co-Founders believe the Pre-Money Valuation for this next Series A Preferred Equity capital investment should jump significantly to $2,000,000.

Given the incredibly strong customer value proposition (i.e. financial benefit) associated with purchasing the product, the SeedStep Angels continue to want to invest, BUT ONLY at an acceptable return/risk profile. Finally, one of the Angel Group members suggests the Group structure this initial capital investment as a twelve month $300,000 Convertible Note with a 10% per annum interest rate and a 20% Conversion Discount into the next Qualified Equity Round, which must be at least a $1.25 million Series A Preferred equity capital investment, within a sixty day period at a minimum 1X Liquidation Preference. Finish completing BOTH Capitalization Tables. Under this Convertible Note capital path, if successful, the Co-Founders retain how much more equity, as a percentage, than by accepting the current SeedStep Angel Pre-Money requirement? _________ % (Hint: Difference in final % Equity for the Co-Founders. (Points 10)

Complete the below Capitalization Table assuming that the Co-Founders and Company NO raise the needed $300,000 as a Convertible Note, which is then converted into the Series A Preferred Funding event in twelve months. (Points 10)

Complete the below Capitalization Table assuming that the Co-Founders and Company NO reluctantly agree to raise the needed $300,000 as a Common Stock at the required SeedStep Angels $900,000 Pre-money Valuation, and then successfully go on to raise the $1,250,000 in Series A at the targeted $2.0 million Pre-money Valuation. (Points 10)