Program-Related Investment Policy of the Zhou & Eesley Family Foundation

2. Definitions and Legal Framework

Under Internal Revenue Code § 4944(c) and Treasury Regulation § 53.4944-3 (as amplified by the final regulations issued in T.D. 9762 (2016) and their illustrative examples), an investment qualifies as a PRI only if all three of the following are met:

1. The primary purpose of the investment is to accomplish one or more of the Foundation's exempt charitable purposes;
2. No significant purpose of the investment is the production of income or the appreciation of property; and
3. No purpose of the investment is to influence legislation or to participate in any political campaign on behalf of (or in opposition to) any candidate for public office.

Consequences of PRI status. A qualifying PRI (a) counts as a qualifying distribution under § 4942 in the year made; (b) is excluded from the asset base used to compute the Foundation's minimum investment return; and (c) is exempt from the tax on jeopardizing investments under § 4944. These benefits apply only if the investment genuinely qualifies; an investment that fails the three-part test is treated as an ordinary investment subject to the prudent-investor and jeopardizing-investment rules.

3. Relationship to the Investment Policy

PRIs are charitable deployments that happen to use investment instruments; they are not part of the endowment portfolio and are not governed by the prudent-investor standard or the return objectives of the Investment Policy. The Investment Policy shall cross-reference this Policy and expressly exclude PRIs from the investment portfolio and from portfolio performance measurement. Evaluating a PRI under return-driven standards is inconsistent with the "no significant investment purpose" requirement and shall be avoided.

4. Charitable Purpose and Mission-Alignment Criteria

Every PRI must directly advance the Foundation's exempt mission: supporting computer-science / AI and entrepreneurship education for women, underrepresented founders, and ventures aligned with the United Nations Sustainable Development Goals. For each proposed PRI, the sponsor must state, in one sentence, the specific charitable purpose advanced and the measurable impact intended. Eligible rationales include catalytic capital to mission-aligned ventures — for-profit or nonprofit — that would not attract conventional financing on the concessionary terms the Foundation offers, or where the primary purpose is charitable and any income purpose is insignificant; expanding access to entrepreneurship or CS/AI education for underserved populations; and advancing an SDG-aligned solution where social return materially exceeds expected financial return.

5. The No-Significant-Investment-Purpose Test

For every proposed PRI the Foundation documents whether a significant purpose of the investment is the production of income or the appreciation of property. As a relevant — but not conclusive — factor in that analysis (Treas. Reg. § 53.4944-3), the Foundation considers whether investors engaged solely for profit would be likely to make the investment on the same terms. A “yes” weighs against PRI treatment but does not, by itself, disqualify the investment; and the fact that a PRI may produce significant income or appreciation is likewise not, by itself, conclusive of a significant investment purpose. What controls is that the charitable purpose is primary and the production of income or appreciation is not a significant purpose. Consistent with the § 53.4944-3 examples (T.D. 9762), the Foundation may make PRIs to for-profit as well as nonprofit recipients, by equity as well as by debt, and a potentially high rate of return does not, standing alone, disqualify a PRI; a for-profit venture with a strong social mission is not excluded merely because it is for-profit or because a commercial investor might also invest. Qualification is supported by concessionary terms (below-market interest, subordination, extended patience, founder-favorable equity), by early-stage or other risk conventional capital avoids, by a target population or geography the commercial market underserves, and/or by contemporaneous documentation that the charitable purpose was primary at the time of investment. The analysis must be documented before approval.

6. Eligible Instruments, Recipients, and Business-Holdings Limits

Permitted instruments include equity, convertible notes and SAFEs, below-market or forgivable loans, guarantees, deposits, and recoverable grants. Recipients may be for-profit or nonprofit entities. The Foundation acknowledges PRI capital is at risk and that losses are an acceptable outcome consistent with the charitable purpose.

Excess business holdings (§ 4943). For equity PRIs, the Foundation shall monitor its holdings so that, together with those of disqualified persons, they do not create "excess business holdings" in a business enterprise. Counsel shall be consulted before any equity PRI that could result in the Foundation (alone or with disqualified persons) holding a substantial percentage of a company's voting stock or value, and any applicable PRI relief or disposition periods shall be observed.

7. Operating-Foundation Status and the Direct-Conduct Requirement

The Foundation is a private operating foundation and intends to retain that classification. Operating-foundation status requires that the Foundation make qualifying distributions directly for the active conduct of its own exempt activities equal to substantially all of the lesser of its adjusted net income or its minimum investment return (the income test), and that it satisfy one of the assets, endowment, or support tests, each of which likewise turns on distributions made directly for the active conduct of its activities.

Distinction that matters. A grant or PRI to a third party outside an actively-conducted program counts as a qualifying distribution but not as one made "directly for the active conduct" of the Foundation's own activities. A PRI made within a program the Foundation actively conducts, and significantly involves itself in, does count toward the direct-conduct income and endowment tests (Treas. Reg. § 53.4942(b)-1; see Section 8). Because the Foundation deliberately structures its PRIs inside its own actively-conducted programs, its PRIs can and do contribute substantially to its qualifying direct-conduct distributions each year. The Foundation nonetheless maintains genuine, documented direct program conduct, including reasonable compensation for the personnel who carry out those programs, so that its operating-foundation status rests on real activity and not on the PRI characterization alone. The Board shall monitor, at least annually, the mix of direct-conduct spending and PRI activity and the significant-involvement documentation for each PRI, and shall consult counsel before any year in which the mix could threaten the income or endowment test.

8. PRIs Within an Actively-Conducted Program (Significant Involvement)

The Foundation may deploy PRIs as catalytic capital inside charitable programs that it actively conducts. Under Treasury Regulation § 53.4942(b)-1, expenditures, including PRIs, made in support of a program the Foundation actively conducts can count as distributions made "directly for the active conduct" of its exempt activities, and therefore toward the operating-foundation income and endowment tests, where the Foundation maintains "significant involvement" in the program. This is the mechanism by which the Foundation reconciles its use of PRIs with the direct-conduct requirement of Section 7.

Significant involvement may be established in either of the two ways recognized by the regulation: (a) the Foundation conducts a program to further a general charitable objective and makes its grants or PRIs as an integral part of that program while remaining significantly involved in it; or (b) the Foundation develops a substantial body of expertise and, through its own officers and staff, actively engages in supervising and directing the program on a continuing basis, not merely selecting recipients and disbursing funds. To rely on this treatment, the Foundation shall:

• Operate PRIs within a defined, Foundation-conducted program (for example, a named fellowship or venture-support program) with a written program design stating its charitable objectives, methodology, and how the Foundation's involvement advances them;
• Provide genuine, continuing involvement by Foundation personnel, structured mentorship, advising, curriculum or technical assistance, and ongoing monitoring, delivered in the Foundation's charitable capacity;
• Maintain contemporaneous documentation substantiating active conduct: the program-design memo, time logs recording officer and staff hours devoted to the program, mentorship and advising records, technical-assistance deliverables, and periodic progress reviews; and
• Treat reasonable compensation for personnel who directly conduct the program as direct-conduct charitable expenditure, consistent with Section 7.

Initial program. The Foundation's PRI activity will initially be conducted in connection with Stanford Emergence, a startup-development program in which a Co-Founder serves as a faculty advisor and sits on the investment committee, and through which the Foundation provides continuing mentorship to the ventures into which it makes PRIs. This selection, advisory, and mentorship role, rendered in the Foundation's charitable capacity, is the significant involvement on which the direct-conduct treatment rests. Because this deal flow originates through a program connected to a Co-Founder's university role, each such PRI is screened and cleared under the institutional conflict-of-interest process described in Section 9, and the Section 9 guardrails apply.

Guardrails. The involvement must be substantial and continuing; token or nominal participation does not qualify. All mentorship and assistance shall be rendered solely in the Foundation's charitable capacity: no Founder, director, officer, or other disqualified person shall accept compensation, equity, advisory shares, carried interest, or a board seat from a PRI recipient in exchange for such assistance, as that would constitute self-dealing and impermissible private benefit (see Section 9). The significant-involvement characterization (for operating-foundation status) and expenditure responsibility (Section 10) are independent requirements; satisfying one does not satisfy the other. The Board shall determine and document, at least annually, that each such program continues to meet the significant-involvement standard, and shall confirm the characterization with counsel given its fact-intensive nature.

9. Conflicts of Interest and Self-Dealing

This section is paramount. Two regimes apply at once: federal § 4941 (which imposes excise taxes on virtually all transactions between the Foundation and "disqualified persons" regardless of fairness) and California Corporations Code § 5233 (the state self-dealing statute, with its own approval findings). "Disqualified persons" are defined in § 4946 and listed on the schedule at Appendix C. The Foundation adopts the following hard rules:

• The Foundation shall not make any new PRI (or MRI) into an entity in which a disqualified person (including either Founder or any family member) holds, or contemplates acquiring, a personal financial interest, and shall not co-invest alongside a disqualified person's personal holdings, a firm no-new-overlap rule. The Foundation's existing overlapping positions, the co-invested MRIs in Sequel and Empo Health, were reviewed and ratified by the disinterested directors as a one-time matter (see the MRI/PRI Ratification Memorandum); no new overlapping investments will be undertaken going forward.
• No PRI shall directly or indirectly benefit a disqualified person, relieve a disqualified person's personal obligation, or apply Foundation assets for a disqualified person's benefit.
• Because deal flow may originate through programs, accelerators, or relationships connected to a Founder's university employment, each PRI shall be screened against that Founder's institutional conflict-of-interest obligations and avoided or cleared in writing under the applicable institutional COI process before approval.
• Each proposed PRI shall be screened against the current Appendix C schedule. Any potential conflict shall be disclosed, and the conflicted person shall recuse from deliberation and the vote.

Board composition. The Foundation maintains a board on which independent (disinterested) directors are a majority, consistent with California Corporations Code § 5227 (no more than 49% interested persons). This independent majority is what enables valid approval of PRIs and of any compensation arrangements.

10. Expenditure Responsibility

When a PRI is made to an entity that is not a U.S. public charity (including most for-profit companies), the Foundation shall exercise "expenditure responsibility" under § 4945(d)(4) and (h), comprising:

1. A pre-investment inquiry into the recipient, documented, sufficient to give reasonable assurance the funds will be used for the intended charitable purpose;
2. A written agreement specifying the charitable purpose, requiring the funds be used only for that purpose, prohibiting use for lobbying or political activity or for non-charitable purposes, and requiring the recipient to maintain records and report;
3. Regular (at least annual) written reports from the recipient on the use of funds until the PRI is repaid or concluded, plus a final report;
4. Complete records of the inquiry, agreement, and reports; specified remedies (including withholding further amounts and pursuing recovery) if funds are diverted from the charitable purpose; and
5. Reporting of each such PRI on the Foundation's annual Form 990-PF as required.

11. Portfolio Limits and Diversification

The Foundation expects program-related investments to grow into a significant and increasing share of total Foundation assets over time: a substantial portion of each year's required distribution (approximately 3.333% of assets) is deployed through PRIs, so the accumulated PRI portfolio will rise relative to the corpus. This growth is intended and consistent with the Foundation's mission-aligned, recycling-capital thesis, and the Foundation therefore does not set a fixed ceiling on aggregate PRI exposure.

The Foundation shall nonetheless maintain diversification so that charitable capital is not unduly concentrated. No single PRI, or aggregate exposure to a single recipient or affiliated group, shall exceed a Board-set per-investment / per-recipient limit; the Board shall review PRI concentration by recipient, sector, and geography at least annually; and any deliberate concentration in a single recipient (such as the Foundation's Oze position) shall be specifically approved and documented, with its rationale recorded. The Board shall also confirm annually that the Foundation retains sufficient liquidity and non-PRI assets to meet its operating, direct-conduct, and distribution obligations.

12. Approval Process and Governance

Each PRI requires approval by the Board (or by a Board-designated committee), based on a written PRI Memorandum (Appendix B). A PRI that presents no conflict of interest may be approved by a quorum and an affirmative vote of a majority of the directors then in office. A PRI that presents a conflict of interest requires, in addition, the affirmative vote of a majority of the disinterested directors then in office, with any conflicted person recusing. (New investments that would overlap a disqualified person's personal holdings are not permitted; see Section 9. The Foundation's existing overlapping positions were ratified by the disinterested directors as a one-time matter.) In either case the approving directors must review the charitable purpose, the documented no-significant-investment-purpose analysis, the conflict screen, the direct-conduct impact, the expenditure-responsibility plan, the business-holdings analysis, and the terms. For any PRI presenting a conflict, the Board shall also make the findings required by California Corporations Code § 5233 (good faith, material facts known, fair and reasonable to and in the best interest of the Foundation). Signature authority and per-investment dollar thresholds for committee versus full-Board approval shall be set by Board resolution. Approval and its basis shall be recorded in contemporaneous minutes.

13. Monitoring, Reporting, and Impact Measurement

For each active PRI the Foundation shall track financial status (outstanding balance, repayments, valuations) and charitable impact against the metrics stated at approval, and shall confirm expenditure-responsibility reporting is current. Staff shall report to the Board at least annually on the PRI portfolio's charitable outcomes, financial status, and effect on the operating-foundation direct-conduct ratio.

14. Treatment of Returns and Recycled Capital

Interest, repayments of principal, and proceeds from sale or redemption of equity PRIs return to the Foundation and are intended for redeployment into further PRIs or charitable use. Amounts returned from a PRI are added to the Foundation's distributable amount for the year of return and must be redistributed in accordance with § 4942. Any financial gain is incidental to, and does not alter, the charitable character of the original investment.

15. Valuation

PRIs shall be valued at least annually using a reasonable, documented methodology appropriate to the instrument (outstanding principal for loans; most recent priced round, impairment analysis, or other supportable basis for equity). PRIs remain excluded from the minimum-investment-return asset base.

16. Mission Drift, Default, and Exit

PRI agreements should include, where practicable, covenants tying the recipient to the charitable purpose and remedies if the recipient materially departs from it (conversion to a grant, acceleration, or other exit). The Foundation shall document its response to defaults or mission drift and shall not extend or modify a PRI in a manner creating a non-charitable benefit to any party.

17. Recordkeeping and Tax Reporting

For each PRI the Foundation shall maintain the PRI Memorandum, conflict screen, board approval and minutes, written agreement, recipient reports, valuations, and correspondence. PRIs shall be reported on Form 990-PF as qualifying distributions and, where applicable, with the required expenditure-responsibility statements.

18. Policy Review and Amendment

The Board shall review this Policy at least every two years and may amend it by Board action recorded in the minutes and reflected in the dated version of this Policy.

19. Important Notice

This Policy is a governance document prepared for the Foundation's internal use and reflects general principles of the federal and California rules governing private foundations. It is not legal or tax advice. Because the conflict-of-interest, operating-foundation, and expenditure-responsibility provisions carry meaningful excise-tax and classification exposure if misapplied, the Board should obtain a review of this Policy, and of any individual PRI presenting conflict, business-holdings, or structuring questions, by qualified counsel or a tax advisor experienced with California private foundations before reliance.

20. Adoption

Adopted by the Board of Directors of the Zhou & Eesley Family Foundation on July 30, 2026. The board vote has taken place and signatures have been gathered; the signed copy is on file with the Foundation's minutes.

Appendix A, PRI Approval Checklist

Complete and attach to the Board minutes for each approved PRI.

• Charitable purpose stated in one sentence and tied to the Foundation's mission
• No-significant-investment-purpose analysis documented (commercial-investor comparison treated as a relevant, non-conclusive factor; charitable primacy shown)
• Conflict / self-dealing screen completed against Appendix C disqualified-persons schedule
• Institutional (university) COI check completed where deal flow is institution-connected
• Confirmed no disqualified person holds or will hold a personal interest in the recipient
• Direct-conduct impact reviewed (PRI does not threaten operating-foundation income/endowment test)
• If relying on significant involvement, program design and staff-hour / advising documentation in place
• Excess-business-holdings (§ 4943) analysis completed for equity PRIs
• Instrument and terms identified; concessionary / catalytic features documented
• Expenditure-responsibility plan in place (inquiry, written agreement, reporting, diversion remedies)
• Within per-investment / per-recipient diversification limits; concentration and liquidity reviewed
• Impact metrics defined for ongoing monitoring
• Disinterested directors approved (majority); § 5233 findings made if conflicted; recusals and minutes recorded

Appendix B, PRI Memorandum Template

Prepared by the sponsor for each proposed PRI and presented to the Board. Each memorandum addresses: recipient / venture; amount and instrument; charitable purpose (one sentence); mission alignment (which exempt purpose); why commercial capital will not fund this on these terms; concessionary / catalytic features of the terms; direct-conduct vs. indirect characterization (effect on operating-foundation tests); significant-involvement basis (program, staff hours, advising records), if relied upon; conflict screen result (disqualified persons; institutional COI); excess-business-holdings analysis (equity PRIs); expenditure-responsibility plan; impact metrics to be tracked; expected term, repayment / exit, and recycling plan; risks and acceptable-loss rationale.

Appendix C, Disqualified Persons Schedule (§ 4946)

"Disqualified persons" under IRC § 4946 include: substantial contributors to the Foundation; foundation managers (officers, directors, trustees); a person owning more than 20% of an entity that is a substantial contributor; family members of any of the foregoing (spouse, ancestors, children, grandchildren, great-grandchildren, and their spouses); and entities more-than-35%-controlled by such persons. The Foundation shall maintain and update the following schedule and screen every PRI against it.

• Lijie Zhou, Co-Founder, President & CEO, Director, substantial contributor. Holdings to screen: personal angel / equity holdings.
• Charles (Chuck) Eesley, Co-Founder, Treasurer, Director, substantial contributor. Holdings to screen: personal angel portfolio (schedule maintained internally).
• Family members of the Founders, § 4946 family (spouse, lineal descendants, their spouses). Holdings to screen as applicable.