SAFE (Simple Agreement for Future Equity)

The document titled 'SAFE (Simple Agreement for Future Equity)' is a legal instrument that outlines the terms and conditions for the issuance of shares of a company's capital stock to an investor. The document begins by certifying that the investor has made a payment, referred to as the 'purchase amount', in exchange for the right to certain shares of the company's capital stock. The document then proceeds to describe various events and scenarios that may occur during the lifespan of the agreement.

 

In the event of an equity financing before the expiration or termination of the agreement, the company will issue shares of either standard ordinary shares or safe ordinary shares to the investor, depending on the pre-money valuation. The investor is required to execute and deliver transaction documents related to the equity financing, and a pro rata rights agreement may also be executed.

 

If a liquidity event occurs before the expiration or termination of the agreement, the investor has the option to receive a cash payment or shares of ordinary shares. The purchase amount is due and payable by the company prior to or concurrent with the consummation of the liquidity event. If there are insufficient funds to pay the investor and other cash-out investors in full, the company's available funds will be distributed pro rata among the cash-out investors.

 

In the event of a dissolution event before the expiration or termination of the agreement, the company will pay an amount equal to the purchase amount to the investor. This payment takes priority over any distribution of assets to holders of outstanding ordinary shares.

 

The agreement will expire and terminate upon the issuance of stock to the investor or the payment of amounts due to the investor. The document also includes definitions for various terms used throughout the agreement, such as 'change of control', 'equity financing', and 'liquidity event'.

 

The company represents that it is duly organized and has the power and authority to enter into the agreement. The investor represents that it has the legal capacity to enter into the agreement and is an accredited investor. The document also includes miscellaneous provisions regarding amendments, notices, and the assignment of rights.

 

The agreement is governed by a specified jurisdiction and is executed as a deed on the date shown on the first page.

How to use this document?

To use the 'SAFE (Simple Agreement for Future Equity)' document, follow these steps:

1. Review the document: Familiarize yourself with the contents of the document, including the terms and conditions outlined.

2. Enter relevant information: Fill in the necessary information, such as the names and addresses of the parties involved, the purchase amount, and the valuation cap.

3. Understand the events: Gain a clear understanding of the different events described in the document, including equity financing, liquidity events, and dissolution events.

4. Execute transaction documents: If an equity financing occurs, the investor must execute and deliver transaction documents related to the financing. Ensure that these documents are consistent with those entered into by other purchasers of standard ordinary shares.

5. Consider pro rata rights: If applicable, the investor and the company will execute a pro rata rights agreement. Understand the implications and rights associated with this agreement.

6. Prepare for liquidity events: If a liquidity event occurs, the investor has the option to receive a cash payment or shares of ordinary shares. Consider the pros and cons of each option and make an informed decision.

7. Understand dissolution events: In the event of a dissolution, the company will pay the investor an amount equal to the purchase amount. Be aware of the priority of this payment and any limitations on the company's available assets.

8. Monitor expiration and termination: The agreement will expire and terminate upon the issuance of stock to the investor or the payment of amounts due. Keep track of these events and ensure compliance with the agreement.

9. Seek legal advice if needed: If you have any questions or concerns about the document or its implications, consult with a legal professional for guidance.

Please note that this guidance is for informational purposes only and does not constitute legal advice. It is recommended to consult with a qualified attorney for specific legal guidance related to the 'SAFE (Simple Agreement for Future Equity)' document.