1. BRIDGE FINANCING Corporate Training Lunch June 18, 2010 Ben Straughan

2. What is a Bridge Financing?  Debt Feature - Loan from one or more investors to the Company  Equity Feature – Expected to convert to equity if anticipated financing occurs  Bridge v. pier

3. Why Bridge?  Fast  Avoid valuation issue  Investor commitment  Gain control over smaller investors

4. Valuation  Preferred Stock Valuation - Negotiating Leverage  Valuation Ceilings  Discount off preferred valuation  Warrant coverage  Time  Common Stock Valuation  Tax/409A

5. Why Invest in a Bridge?  Ensure access to hot deal  Keep Company moving forward  Better return in exchange for higher risk

6. When Bridge?  Pre-seed or pre-first round  Expected financing  "Down" round  Expected sale

7. Documentation  Term Sheet  Note Purchase Agreement  Convertible Promissory Note  Warrant

8. Term Sheet  Keeps deal on track  Offering tool  Usually non-binding  Economic Terms/sweetener

9. Purchase Agreement  Representations and warranties  Company representations  Investor reps for securities compliance  Minimum amount for initial closing  Affirmative / Negative Covenants  Managing multiple purchasers

10. Convertible Promissory Note  Term / Maturity Date  Interest  Conversion  Automatic vs. Optional  Triggering Events  Qualified Financing  Passage of Time  Corporate Transaction

11. Sweeteners  Discount on Conversion  Warrant  "Warrant Coverage"  Term  Cashless exercise

12. Convertible Note (cont'd)  Miscellaneous Clauses  Prepayment  Participation  Milestones  Security / Subordination  Default / Acceleration  Amendment by majority in interest

13. Bridge Tax Issues Bridge Tax Issues  Imputed interest for low rates  Original Issue Discount ("OID") issues Warrant  Penny warrants  Common Stock Valuation

14. Securities Compliance  Analyze exemption  Consider Form D for bridge and subsequent conversion

15. Other  Review Charter, financing agreements  Interest calculation on conversion  Noteholder waiver if no "qualified financing"  Interim LLC Funding

16. Practical Tips  Expense of financing  Speed  Check consent requirements, financing documents  Carries debt remedies