Term Sheet Template - National Venture Capital Association (Page 16 of 25) in pdf

of a Certificate of Incorporation establishing the rights and

preferences of the Series A Preferred, and an opinion of counsel to

the Company.

Counsel and Expenses:

[Company] counsel to draft financing documents. Contingent upon

closing the financing, the Company shall pay the investors’ legal

expenses up to a limit of $[_____] with respect to the transaction,

[payable at Closing], which amount will be reviewed and, if

appropriate, increased upon commencement of the negotiation of the

definitive transaction documents.

Company Counsel:

[

]

Investor Counsel: [

]

INVESTOR RIGHTS AGREEMENT

Registration Rights:

Registrable Securities:

All shares of Common Stock issuable upon conversion of the

Series A Preferred [and any other Common Stock held by the

Investors] [and Common Stock held by Founders] will be deemed

“Registrable Securities.”

Upon earliest of (i) [4-6] years after the Closing; or (ii) [six] months

Demand Registration:

following an initial public offering (“IPO”), persons holding

[__]%

of the Registrable Securities may request [one][two]

(consummated) registrations by the Company of their shares. The

aggregate offering price for such registration may not be less than

$[5-10] million. A registration will count for this purpose only if

(i) all Registrable Securities requested to be registered are registered

and (ii) it is closed, or withdrawn at the request of the Investors

(other than as a result of a material adverse change to the Company).

Note that Founders/management sometimes also seek registration rights.

The Company will want the percentage to be high enough so that a significant portion of the Investor

base is behind the demand (e.g., to cause the Company to effect a registered offering, particularly an IPO). Companies

will typically resist allowing a single minority Investor to cause a registration. Experienced Investors will want to

ensure that less experienced Investors do not have the right to cause a demand registration. In some cases, different

series of Preferred Stock may request the right for that series to initiate a certain number of demand registrations.

Companies will typically resist this due to the cost and diversion of management resources when multiple constituencies

have this right.

ABA Comments to NVCA Term Sheet - Final Version.DOC

Term Sheet Template - National Venture Capital Association Page 16