TERM SHEET

Parties
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[Note: Please list all Founders]
together: Founders
Traction Labs Zrtkren Mkd Rszvnytrsasg (registered seat: 8000 Szkesfehrvr,
Kirlysor 30., Hungary; registration number: Cg.07-10-001427) a company established and
operating under Hungarian law (Investor).
together: Parties
who shall establish a limited liability company (in Hungarian: korltolt felelssg trsasg)
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 investment
agreement. 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, Lnyay 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

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 Quota, 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 qualified
financing 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 in
the event that the relevant member is the managing director. Upon establishment of the

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, the
Company 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).

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 Companys 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 kos Ery 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, Mnesi t 39., I. emelet 3. ajt, 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)
(ii)

(iii)
(iv)
(v)
(vi)

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

Company;
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.);
decision on the transfer, encumbrance or utilization in other manner of intellectual
properties held by the Company;
capital decrease, modification of the company form, transformation or termination of
the Company without legal successor;
remuneration payable to the auditor and executive officers;
approval of the business plan;

(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 the
business 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 than
above 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

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 capital
increase before the third party investor with the same terms and conditions. The preemption 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.

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 that
competes 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 that
Founders 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 is
solely 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 Founders 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

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 (%)
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[]

Common
Common
Common
Preferred

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