This is the term sheet contract in the accelerator program StartupReykjavik.
PROGRAM PARTICIPATION, ISSUANCE OF SHARES AND SHAREHOLDERS AGREEMENT
This Agreement is dated Date
(1) Arion Bank hf., Id. Number 581008-0150, Borgartúni 19, 105 Reykjavík, Iceland („AB“),
(2) Founder 1
(3) Founder 2
(4) Name of Company, a limited liability company incorporated under the laws of Iceland (“the
The parties (1) - (4) are hereinafter also individually and collectively referred to as “Shareholder” or as "Shareholders". The parties (2) and (3) are jointly referred to as “the Founders". The parties mentioned under (1) - (4) are hereinafter also individually and collectively referred to as “Party” or as "Parties".
a. AB is organizing a Start-up Accelerator Program taking place in June - August 2012 in Reykjavík, branded as Startup Reykjavik, described on www.startupreykjavik.com (“the Program") for startup companies. The Program involves, that the Founders will receive from AB 2,000,000 ISK, as described in this Agreement, as well as housing, internet, and connections with network and mentors for 10 weeks, in order to accelerate their idea, in turn for a 6% stake of the Startup. The Program ends on a Demo day where the Founders pitch their idea, for potential future investors and partners. The Founders will incorporate a startup company (the Startup), with a registered purpose in connection with the idea.
b. The startup companies (including the Startup) have already been incorporated by the Founders as a limited liability company incorporated under the laws of Iceland;
c. The Startup is active in description of the Startup’s operations
d. The Founders currently hold all the shares in the Startup;
e. During April-May 2012, the Startup successfully participated in the selection process to qualify for participation in the Program and AB has invited the Startup to actually participate in the Program;
f. The Founders and the Startup have accepted such invitation and shall participate in the Program;
g. The Parties now therefore desire to lay down their understanding in writing in this agreement (“the Agreement") stipulating the terms and conditions of i) the right of the Startup to participate in the Program, ii) the issuance of the shares and iii) the Parties' possession of the shares and all other shares in the Startup that might be issued at a later date.
1. PARTICIPATION IN THE PROGRAM AND ISSUANCE OF THE SHARES
1.1. AB hereby grants the Startup the right to participate in the Program and the Startup accepts the right to participate in the Program.
1.2. The Founders and the Startup shall issue as many shares to AB as necessary, in order for AB to hold 6% of all the shares in the share capital of the Startup (the "Shares"). AB hereby agrees to accept these Shares. The Shares shall enjoy the same rights as shares directly or indirectly owned by the Founders.
1.3. The Founders and the Startup are obliged to undertake all actions required to affect the issuance of the Shares to AB immediately after the signing of this Agreement, including but not limited to:
- 1.3.1. the execution of the deed of issuance of shares;
- 1.3.2. the waiving of the Founders of their pre-emption right in a separate shareholders resolution;
- 1.3.3. the issuance of a share certificate for the Shares to AB;
- 1.3.4. providing AB with an updated register of all the Startup's shareholders.
1.4. AB shall have the discretionary right to require the Startup to leave the Program at any time. The Startup shall be present on Demo Day on Demo Day Date ("Demo Day") but AB has a discretionary right to deny the Startup to be present if AB takes the discretionary view that the Startup cannot deliver the quality required. In any case, AB will still hold its Shares in the Startup.
2. PAYING UP OF THE SHARES
2.1. AB will pay up the issued Shares, according to Art. 1.2, by paying ISK 2,000,000 (the "Pay up Price"), into the bank account of the Startup under the following conditions:
2.1.1. 50 % of the Pay up Price (i.e. ISK 1,000,000) shall be paid upon completion of the following conditions:
- completion by the Startup of the first week of the Program; and
- after the issuance of the Shares to AB has been effected, according to Art. 1.2 and 1.3.
2.1.2. The remaining 50 % of the Pay up Price (i.e. ISK 1,000,000) shall be paid upon completion by the Startup of the first six weeks of the Program.
3. ADDITIONAL INVESTOR AND ANTI-DILUTION
3.1. The Shareholders in the share capital of the Startup may admit an additional investor ("Additional Investor"), to invest cash into the Startup in exchange for shares. As and from the applicable date of admission any such Additional Investor shall be deemed to be party to this Agreement. The Founders shall procure that on the date of admission each Additional Investor shall execute a deed of adherence to this Agreement in a form acceptable to all Shareholders and thereafter this Agreement and such deed of adherence shall constitute one agreement.
3.2. In case any future capital contributions will be made by Additional Investors in the Startup with an aggregate worth more than ISK 40,000,000 within 12 months after the Demo Day ("Qualified Injection"), AB shall have the same rights as the Founders. This includes that the Shares shall be diluted in the same proportion as those shares belonging to the Founders.
3.3. In case any future capital contributions will be made by Additional Investors in the Startup with an aggregate worth less than ISK 40,000,000 within 12 months after the Demo Day, the Founders shall transfer as many of their shares in the Startup for no consideration to AB, in order for AB to maintain its 6% shareholding.
3.4. In order to avoid confusion it shall be emphasized that only injections of cash into the Startup against the Startup issuing new shares are taken into consideration when determining whether funding is considered to be a Qualified Injection or not. Loans of any kind, such as but not limited to 2 Startup Reykjavik participation, issuance of shares and shareholders agreement. Convertible loans or loans with an equity risk, are not taken into consideration and will therefore not dilute AB.
3.5. Under no circumstances has AB an obligation to make any additional investments by (including but not limited to) injecting cash into the Startup.
4. TRANSFER OF SHARES TO THIRD PARTIES
4.1. In case of any sale of shares in the Startup to third parties, the selling Parties are obliged to demand of the acquiring third parties that AB will also have a right (but not an obligation) to sell its shares to these third parties on the same proportional conditions as the selling Parties.
4.2. In the case of a collective exit to an independent third party (meaning a sale of 100% of the shares in the Startup or a sale of 100% of the assets in the Startup), all Parties are obliged to sell their shares to said independent third party. The sale of shares shall be on the same proportional conditions for each Party as all other Parties. This drag along obligation only applies in case of a sale at market value and at a price higher than ISK 100,000,000 (the "Minimum Exit Value") in case of a sale of the shares, and at price higher than the aggregate of the Minimum Exit Value and the debt in the Startup in the case of a sale of the assets in the Startup.
5. REPRESENTATIONS AND WARRANTIES
5.1. The Founders and the Startup represent and warrant that each of the representations and warranties below is true and accurate on the date of this Agreement. Furthermore, the Founders represent and warrant that they have given all such information and documentation to AB that is reasonably deemed relevant for the contents of this Agreement.
5.1.1. The Founders and the Startup represent and warrant that the Startup has been duly incorporated and validly exists under the laws of Iceland and that the Founders have the necessary corporate capacity and power to enter into the Agreement and to perform its obligations under the Agreement, the terms of which shall be valid and binding.
5.1.2. The Founders and the Startup represent and warrant that all corporate and other action required to be taken by the Founders to authorise the execution of this Agreement and the performance of its obligations under the Agreement have been duly taken or will have been duly taken by completion of the issuance of the shares of the Startup to AB.
5.1.3. The Founders and the Startup represent and warrant that the financial statements of the
Startup, attached as Schedule 5.1.3:
- a. have been prepared in accordance with the Generally Accepted Accounting Principles ('GAAP').
- b. show a true and fair view of the financial position, assets, liabilities and results of the Startup for the financial year ending on the Financial Year End Date;
- c. have been duly filed or an exemption from filing has been obtained in accordance with applicable law.
5.1.4. The Founders and the Startup represent and warrant that the Startup (and/or its affiliates) is not engaged in any litigation, arbitration or other legal proceedings and there are no written claims threatened against the Startup (and/or or its affiliates).
5.1.5. The Founders and the Startup represent and warrant that any and all tax for which the Startup has been assessed or that has or shall become due has either been paid in full or been fully provided for in the Startup's financial Statements.
5.1.6. The Founders and the Startup represent and warrant that the Startup has properly filed all returns required to be filed pursuant to any relevant law.
5.1.7. The Founders and the Startup represent and warrant that the Startup is not subject to any disagreement or dispute with any tax authority regarding the tax position of the Startup.
5.1.8. The Founders and the Startup represent and warrant that the Startup is not part of any fiscal unity for corporate income tax or value added tax purposes.
5.1.9. The Founders and the Startup represent and warrant that all the issued shares in the share capital of the Startup have been paid up in full.
5.1.10. The Founders and the Startup represent and warrant that there are no holders of depository receipts that have been, or will be, issued. The Founders have not, and shall not, pledge or render a right of usufruct with regard to, any of the shares in the share capital of the Startup.
5.1.11. The Founders and the Startup represent and warrant that they will refrain from any transfer or issuance of any shares in the capital of the Startup to any third party and from the assumption of any obligation to such transfer or issue, and from any cooperation to such transfer of issue.
5.1.12. The Founders and the Startup represent and warrant that the Shares issued to AB rank equally in all respects holding the same rights as the existing shares.
6. INFORMATION RIGHTS AND D&O INSURANCE
6.1. The Startup shall no later than on the 10th business day of each quarter send AB a short general update of the business and financial affairs of the Startup and other information that AB may from time to time reasonably require by e-mail. The quarterly e-mail shall be sent without AB having to request it.
6.2. AB shall be entitled to appoint a supervisory board that shall have the right to attend all meetings of the board of directors of the Startup. The Startup shall send to AB:
- 6.2.1. a notice of each meeting of the board of directors with a reasonable advance. Such notice shall be accompanied by a written agenda specifying the business to be discussed at the meeting along with all relevant papers; and
- 6.2.2. as soon practicable after said meeting, a copy of the minutes from said meeting shall be delivered by email.
6.3. AB shall be entitled to annually audit the Startup. From this respect the Startup will send to AB any information deemed necessary by AB for the audit upon first written request.
6.4. The Founders are obliged to inform AB of any events or risks that can have a material impact on the Startup or the Founders ability to develop the Startup and its business.
6.5. Upon request of AB the Founders and the Startup shall to take such actions as necessary in order for the statutory directors of the Startup to take out directors' and officers' liability insurance.
7. INTELLECTUAL PROPERTY RIGHTS AND WORKS
7.1. "Intellectual Property Rights" shall be defined as patents, rights to inventions, copyright and related rights, trademarks, trade names and domain names, rights in goodwill, rights in designs, rights in computer software, database rights, rights in confidential information (including know-how and trade secrets) whether registered or unregistered and including all applications (and rights to apply for such rights as mentioned under this paragraph), and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist, now or in the future, in any part of the world that can in any way be related to what is described in the application to the Program and what is developed during the Program and what is in the future developed by the Startup and/or by third parties working for the Startup.
7.2. "Works" shall be defined as the documents, products, processes, materials, designs, brands and images created prior to the date of signing of this Agreement by the Founders relating to what is described in the application to the Program and what is developed during the Program and what is in the future developed by the Startup.
Assignment/transfer of Intellectual Property Rights and Works
7.3. The Founders hereby guarantee to have transferred to the Startup the Intellectual Property Rights and the Works, including but not limited to the Intellectual Property Rights and Works listed in Schedule 7.3, to the Startup and the Startup hereby confirms to have received such Intellectual Property Rights and the Works.
7.4. The Founders unconditionally and irrevocably waive all rights which they may have in connection with the Intellectual Property and the Works.
7.5. The Founders agree that they eventually may make, discover or create Intellectual Property Rights in the course of or in connection with the Startup and agree that in this respect the Founders have an obligation to immediately transfer these Intellectual Property Rights to the Startup, on their own initiative and/or on request of AB.
7.6. The Startup undertakes that, other than in the ordinary course of its business, it will not assign, transfer, sell, (sub)licence or otherwise dispose of or encumber any of the Intellectual Property Rights or Works of the Startup unless with the prior given consent of AB and it is at market value and the price is higher than the Minimum Exit Value.
7.7. The above paragraph shall not apply to in the event a Qualified Injection by an Additional Investor has been made and as a result of the negotiations the Startup is transferring or injecting the Intellectual Property Rights or Works into a subsidiary, directed and controlled by the Startup. In that case the Startup undertakes that, other than in the ordinary course of its business, this subsidiary will not assign, transfer, sell, (sub)licence or otherwise dispose of or encumber any of the Intellectual Property Rights or Works at a price below the Minimum Exit Value. Such a transfer of the Intellectual Property Rights or Works can only be to independent third parties and at fair market conditions. In this case the Founders are not entitled to own shares directly in the subsidiary Startup but only via their ownership in the Startup.
8. CONTRACTS WITH THE FOUNDERS AND RELATED PARTIES
All agreements, including but not limited to employment contracts, between the Startup and the Founders and/or any related parties shall require the written prior approval of AB.
9.1. The Founders are not entitled to, in any other way than via the Startup, to directly or indirectly carry out any activity or have any interest in any other business that competes with a business model that can be related to or be considered to be similar to the Intellectual Property, the Works and/or the Startup's activities.
9.2. The Founders are aware that AB, being the founder of the Program in which various persons and companies are participating, cannot reasonably undertake the competition limitation mentioned in clause 9.1.
10.1. The Founders and the Startup will from time to time receive advice, business coaching and similar services from AB and the mentors participating in the Program. The Shareholders agree that these services are advisory in nature and, as such, the final decision as to whether to follow such advice rests with the Startup and/or the Shareholders. Therefore the Startup and the Shareholders agree to waive any claims they may have against AB in contract, tort (including negligence) or otherwise arising at any time in relation to services provided by AB and/or its mentors.
11. AGREEMENT TO PREVAIL
In the event of any inconsistency between any provisions of this Agreement and the articles of association of the Startup, this Agreement shall prevail.
This Agreement and any actions taken by any of the Parties pursuant to this Agreement shall not be deemed to constitute a partnership, unincorporated association or joint venture between any of the Parties.
If any provisions of this Agreement shall become illegal, invalid or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be impaired.
14. GOVERNING LAW AND JURISDICTION
14.1. This Agreement shall be governed by and construed in accordance with the law of Iceland.
14.2. Each party irrevocably agrees to submit to the exclusive jurisdiction of the courts of Iceland.
Schedule 1 – The Founders application to the Program
Schedule 5.1.3 – Financial statements of the Startup
Schedule 7.3 – The Startup's Intellectual Property Rights and Works
Investor Name on behalf of Arion Bank hf.
on behalf of Name of Company