THIS INSTRUMENT AND ANY SECURITIES ISSUABLE IN ACCORDANCE WITH THIS DOCUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
(Simple Agreement for Future Equity)
“The Investor”, Investor name, agrees to make a payment of Purchase amount (the “Purchase Amount”) to the State of Formation Company Type Company name ("The Company”) on date in exchange for the right to certain shares of The Company’s Capital Stock, subject to the terms set forth below.
“Capital Stock” means the capital stock of the Company, including “Common Stock” and “Preferred Stock.”
“Change of Control” means (i) any transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), directly or indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), of more than 50% of the outstanding voting securities of the Company, (ii) any reorganization or merger of the Company in which the holders (in total) of the voting securities of the Company immediately prior to such event retain less than 50% of the total voting power in the Company or resulting entity immediately after the event, or (iii) a sale, lease, or other disposition of more than 50% of the assets of the Company.
“Discount Rate” is Discount Rate% (100 minus the discount).
“Discount Price” is the price per share of the Preferred Stock sold in the Equity Financing event multiplied by the Discount Rate.
“Distribution” means the transfer of cash or other property to stock holders by reason of their ownership of Capital Stock, other than:
“Dissolution Event” means (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary.
“Equity Financing” means a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which the Company issues and sells Preferred Stock at a fixed pre-money valuation.
“Initial Public Offering”means the closing of the Company’s first firm commitment underwritten initial public offering of Common Stock pursuant to a registration statement filed under the Securities Act.
“Liquidity Event” means a Change of Control or an Initial Public Offering.
“Liquidity Price” means the price per share equal to: the fair market value of the Common Stock at the time of the Liquidity Event, as determined by reference to the purchase price payable in connection with such Liquidity Event, multiplied by the Discount Rate.
“Reference Worth” means the lesser of the investor's net worth or annual income.
“SAFE” means an instrument containing a future right to shares of Capital Stock, similar in form and content to this instrument, purchased by investors for the purpose of funding the Company’s business operations.
(a) Equity Financing. If there is Equity Financing before the expiration or termination of this instrument, the Company will automatically issue to the Investor a number of shares of Preferred Stock equal to the Purchase Amount divided by the Discount Price. The Preferred Stock issued to the Investor will have identical rights and restrictions to the stock issued in the Equity Financing round.
(i) The Investor will execute and deliver to the Company all transaction documents related to the Equity Financing, provided that such documents are the same documents to be entered into with the purchasers of Preferred Stock in the Equity Financing round with appropriate variations for the the Investor, and provided further, that such documents have customary exceptions to any drag-along applicable to the Investor, including limited representations, warranties, limited liability, indemnification obligations on the part of the Investor; and
(ii) In the transaction documents related to the Equity Financing, the Investor will be included in pro rata rights giving the Investor a right to purchase additional securities in subsequent financing rounds occurring after the Equity Financing, subject to customary exceptions, in order to maintain the percentage Capital Stock ownership in the Company they held immediately prior to the issuance of the securities in said subsequent financing rounds.
(b) Liquidity Event. If there is a Liquidity Event before the expiration or termination of this instrument, the Investor may either (i) receive a cash payment equal to the Purchase Amount (subject to the following paragraph) or (ii) automatically receive from the Company a number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price, if the Investor fails to select the cash option.
In connection with Section (b)(i) above, the Purchase Amount will be paid by the Company to the Investor immediately prior to or concurrent with the Liquidity Event. If there are not enough funds to pay the Investor and holders of other SAFEs (collectively, the “Cash-Out Investors”) in full, then all of the Company’s available funds will be distributed with equal priority and pro rata among the Cash-Out Investors in proportion to their Purchase Amounts, and the Cash-Out Investors will automatically receive the number of shares of Common Stock equal to the remaining unpaid Purchase Amount divided by the Liquidity Price. If the Change of Control is intended to qualify as a tax-free reorganization, the Company may reduce, pro rata, the Purchase Amounts paid to the Cash-Out Investors by the amount determined in good faith by the Company to be required to qualify as a tax-free reorganization for U.S. federal income tax purposes, and in such case, the Cash-Out Investors will automatically receive the number of shares of Common Stock equal to the remaining unpaid Purchase Amount divided by the Liquidity Price.
(c) Dissolution Event. If there is a Dissolution Event before this instrument expires or terminates, the Company will pay an amount equal to the Purchase Amount, due and payable to the Investor immediately prior to or concurrent with the Dissolution Event. The Purchase Amount will be paid before any Distribution is made to stock holders by reason of their ownership of Capital Stock. If immediately prior to the Dissolution Event, the assets of the Company legally available for distribution to the Investor and all holders of all other SAFEs (the “Dissolving Investors”), as determined in good faith by the Company, are insufficient to permit the payment to the Dissolving Investors of their respective Purchase Amounts, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the Dissolving Investors in proportion to the Purchase Amounts they would otherwise be entitled to receive pursuant to this Section.
(d) Termination. This instrument will expire and terminate upon the issuance of stock to the Investor according to this agreement.
(e) Financing Lapse. In the case that no other event listed in this section has happened within 4 years of signing this contract, the Investor may demand that this SAFE be converted to Preferred Stock at the current valuation of the Company in the same way as done in an Equity Financing event. If the Company does not have an official valuation at that point, the Investor may further demand that the Company obtain an independant professional valuation.
3. Company Representations
(a) The Company is an active and valid LLC in good standing under the laws of State of Formation, and has the authority to own, lease and operate its properties and carry on its business as now conducted.
(b) The execution, delivery and performance by the Company of this instrument is within the power of the Company and, other than with respect to the actions to be taken when equity is to be issued to the Investor, has been duly authorized by all necessary actions on the part of the Company. This instrument constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity. To the knowledge of the Company, it is not in violation of (i) its current operating agreement, (ii) any material statute, rule, or regulation or (iii) any contract the Company is bound by, where such violations together could reasonably be expected to have a material adverse effect on the Company.
(c) To the knowledge of the Company, the execution of the terms set forth by this contract do not and will not: (i) violate any material judgment, statute, rule, or regulation; (ii) result in the acceleration of any contract the Company is bound by; or (iii) result in the creation or imposition of any lien upon any property, asset, or revenue of the Company or the suspension, forfeiture, or non-renewal of any material permit, license, or authorization applicable to the Company, its business or operations.
(d) No consents or approvals are required in connection with the performance of this instrument, other than: (i) the Company’s approval, (ii) any qualifications or filings under applicable securities laws, and (iii) necessary approvals by the Company for the authorization of Capital Stock to be issued in events set out in this contract.
(e) To its knowledge, the Company has (or can obtain on commercially reasonable terms) sufficient legal rights to all intellectual property rights necessary for its business as now conducted and as currently proposed to be conducted.
4. Investor Representations
(a) The Investor has full legal capacity, power and authority to execute and deliver this instrument and to perform its contractual obligations. This instrument constitutes valid and binding obligation of the Investor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.
(b) The Investor has been advised that this instrument and the underlying securities have not been registered under the Securities Act, or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws. The Investor is purchasing this instrument for investment, not as a nominee or agent, and not with the intention to resell or grant another party any participation in this instrument or the securities resulting from events laid out in this contract. The Investor has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment without impairing the Investor’s financial condition, and is able to bear the economic risk of such investment for an indefinite period of time.
(c) The Investor, in relationship to their investment, has one of the following attributes:
(a) Any provision of this instrument may be amended, waived or modified only upon the written consent of the Company and the Investor.
(b) Any notice required or permitted by this instrument will be deemed sufficient when delivered in one of the following ways:
(c) The Investor is not entitled to any of the rights of a stockholder of the Company until shares have been issued as described in this contract.
(d) Neither this instrument nor any rights contained herein may be transferred by either party without the prior written consent of the other, with the exception that the Investor may transfer this instrument to an entity that directly or indirectly controls, is controlled by, or is under common control with the Investor, for example any general partner, managing member, officer or director of the Investor, or any venture capital fund controlled by one of the same or that shares the same management company with the Investor, and the second exception that the Company may reassign its obligations related to this instrument in whole, without the consent of the Investor, in connection with a reorganization to change the Company’s domicile.
(e) In the event that any of the provisions of this instrument is held to be illegal, unenforceable, or would render this instrument invalid, such provisions only will be deemed null and void and the remaining provisions of this instrument will remain operative and in full force.
(f) All rights and obligations in this contract will be governed by the laws of the State of State of Formation, without regard to the conflicts of law provisions of such jurisdiction.
The signature below make this agreement official and active between the Company and the Investor:
This contract is also on Docracy at https://www.docracy.com/8mwnqi54ad/safe-discount-for-an-llc