THIS NOTE PURCHASE AGREEMENT (“Agreement”) is made as of __________, by and among __________, Inc., a Delaware corporation (the “Company”), and the lenders (each individually a “Lender,” and collectively the “Lenders”) named on the Schedule of Lenders attached hereto (the “Schedule of Lenders”). Capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to them in Section 1 below.
WHEREAS, each of the Lenders intends to provide certain Consideration to the Company as described for each Lender on the Schedule of Lenders; and
WHEREAS, the parties wish to provide for the sale and issuance of Notes in return for the provision by the Lenders of the Consideration to the Company.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
(a) “Common Stock” shall mean common stock, par value $[0.0001] per share, of the Company.
(b) “Consideration” shall mean the amount of money paid by each Lender pursuant to this Agreement as shown on the Schedule of Lenders.
(c) “Conversion Shares” shall, for purposes of determining the type of Equity Securities issuable upon conversion of the Notes, mean:
(i) with respect to a conversion pursuant to Section 2.2(a), the shares of the Company’s preferred stock issued in the Next Equity Financing;
(ii) with respect to a conversion pursuant to Section 2.2(b), the shares of the Company’s preferred stock issued in the Non-Qualified Financing;
(iii) with respect to a conversion pursuant to Section 2.2(c), shares of the Company’s Common Stock; and
(iv) with respect to a conversion pursuant to Section 2.2(d), shares of the Company’s Series [A] Preferred Stock on the terms attached hereto as Exhibit A.
(d) “Conversion Price” shall mean:
(i) with respect to a conversion pursuant to Section 2.2(a), the lower of (A) 80% of the price paid per share for the Company’s preferred stock by the investors in the Next Equity Financing and (B) a price per share reflecting a pre-money valuation of the Company of $[3,000,000] on a fully-diluted, as converted basis (including, without limitation, any securities reserved for issuance pursuant to any equity incentive plan and any increase to the number of shares reserved for issuance made in connection with such financing, but excluding any securities issuable upon conversion of the Notes or any other convertible promissory notes outstanding as of the date of this Agreement (“Other Notes”) to the extent such Other Notes remain outstanding as of immediately prior to the conversion of the Notes);
(ii) with respect to a conversion pursuant to Section 2.2(b), the lower of (A) 80% of the price paid per share for the Company’s preferred stock by the investors in the Non-Qualified Financing and (B) a price per share reflecting a pre-money valuation of the Company of $[3,000,000] on a fully-diluted, as converted basis (including, without limitation, any securities reserved for issuance pursuant to any equity incentive plan and any increase to the number of shares reserved for issuance made in connection with such financing, but excluding any securities issuable upon conversion of the Notes or any Other Notes to the extent such Other Notes remain outstanding as of immediately prior to the conversion of the Notes);
(iii) with respect to a conversion pursuant to Section 2.2(c), the lower of (A) the price per share of Common Stock paid by the acquirer or as consideration for each share of Common Stock in a Corporate Transaction and (B) the quotient resulting from dividing (1) $[3,000,000] by (2) the number of shares of outstanding Common Stock of the Company immediately prior to the closing of the Corporate Transaction on a fully-diluted, as converted basis (but excluding any securities reserved for issuance pursuant to any equity incentive plan and excluding any securities issuable upon conversion of the Notes or any Other Notes to the extent such Other Notes remain outstanding as of immediately prior to the conversion of the Notes); and
(iv) with respect to a conversion pursuant to Section 2.2(d), the quotient resulting from dividing (A) $[3,000,000] by (B) the number of shares of outstanding Common Stock of the Company immediately prior to the Maturity Date on a fully-diluted, as converted basis (including, without limitation, any securities reserved for issuance pursuant to any equity incentive plan but excluding any securities issuable upon conversion of the Notes or any Other Notes to the extent such Other Notes remain outstanding as of immediately prior to the conversion of the Notes).
(e) “Corporate Transaction” shall include (i) the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets, (ii) an exclusive license of the Company’s intellectual property, (iii) the consummation of the merger or consolidation of the Company with or into another entity (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity), (iv) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of the Company’s securities), of the Company’s securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of the Company (or the surviving or acquiring entity) or (v) a liquidation, dissolution or winding up of the Company; provided, however, that a transaction shall not constitute a Corporate Transaction if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately prior to such transaction. Notwithstanding the prior sentence, the sale of shares of the Company’s preferred stock in a bona fide financing transaction shall not be deemed a Corporate Transaction.
(f) “Equity Financing” shall mean the next sale (or series of related sales) by the Company of its Equity Securities following the date of this Agreement and prior to the Maturity Date.
(g) “Equity Securities” shall mean the Company’s Common Stock or preferred stock or any securities conferring the right to purchase the Company’s Common Stock or preferred stock or securities convertible into, or exchangeable for (with or without additional consideration), the Company’s Common Stock or preferred stock, except any security granted, issued and/or sold by the Company to any director, officer, employee or consultant of the Company in such capacity for the primary purpose of soliciting or retaining their services.
(h) “Initial Public Offering” or “IPO” shall mean the closing of the issuance and sale of shares of Equity Securities of the Company in the Company’s first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”).
(i) “Majority Note Holders” shall mean the holders of a majority in interest of the aggregate principal amount of Notes.
(j) “Maturity Date” shall be as set forth in each Note (as defined below).
(k) “Next Equity Financing” shall mean the next sale (or series of related sales) by the Company of its preferred stock following the date of this Agreement from which the Company receives aggregate gross proceeds of not less than $[3,000,000] (excluding the aggregate amount of debt securities converted into Equity Securities upon conversion of (i) the Notes pursuant to Section 2.2 below and (ii) any other notes outstanding as of the date of this Agreement).
(l) “Non-Qualified Financing” shall mean the next sale (or series of related sales) by the Company of its preferred stock following the date of this Agreement that does not qualify as a Next Equity Financing.
(m) “Notes” shall mean the one or more convertible promissory notes issued to each Lender pursuant to Section 2.1 below, the form of which is attached hereto as Exhibit B.
(n) “Pro Rata Portion” of a Lender shall mean no less than ___ percent.
2.1 Issuance of Notes. In return for the Consideration paid by each Lender, the Company shall sell and issue to such Lender one or more Notes. Each Note shall have a principal balance equal to the Consideration paid by such Lender for the Note, as set forth in the Schedule of Lenders. Each Note shall be convertible into Conversion Shares pursuant to Section 2.2 below.
2.2 Conversion of Notes.
(a) Next Equity Financing. The principal and unpaid accrued interest of each Note will be automatically converted into Conversion Shares upon the closing of the Next Equity Financing. Notwithstanding the foregoing, accrued interest on this Note may be paid in cash at the option of the Company. The number of Conversion Shares to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion, by the Conversion Price. The issuance of Conversion Shares pursuant to the conversion of each Note shall be upon and subject to the same terms and conditions applicable to the Company’s preferred stock sold in the Next Equity Financing.
(b) Non-Qualified Financing. The principal and unpaid accrued interest of a Note may, at each Lender’s election, be converted into Conversion Shares upon the closing of a Non-Qualified Financing. Notwithstanding the foregoing, accrued interest on this Note may be paid in cash at the option of the Company. The number of Conversion Shares to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion, by the Conversion Price. The issuance of Conversion Shares pursuant to the conversion of a Note shall be upon and subject to the same terms and conditions applicable to the Company’s preferred stock sold in the Non-Qualified Financing.
(c) Corporate Transaction. In the event of a Corporate Transaction prior to full payment of a Note or prior to the time when a Note may be converted (as provided herein), the Company shall, at least ten (10) days prior, notify in writing the holder of each Note of the anticipated closing date of such Corporate Transaction and at the election of each Lender, (i) all outstanding principal and unpaid accrued interest due on such Note shall be converted into that number of Conversion Shares equal to the quotient obtained by dividing (x) the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion by (y) the Conversion Price; or (ii) all outstanding principal and unpaid accrued interest due on such Note shall be due and payable at or prior to the closing of the Corporate Transaction in an amount equal to (A) two (2) times the outstanding principal amount of such Note plus (B) any accrued but unpaid interest thereon.
(d) Maturity Conversion. If any Note has not been converted on or before the Maturity Date, the principal and unpaid accrued interest of a Note may, at each Lender’s election, be converted into Conversion Shares. The number of Conversion Shares to be issued upon conversion shall be equal to the quotient obtained by dividing (i) the outstanding principal and unpaid accrued interest of such Note by (ii) the Conversion Price.
(e) No Fractional Shares. Upon the conversion of a Note into Conversion Shares, in lieu of any fractional shares to which the holder of the Note would otherwise be entitled, the Company shall pay the holder of the Note cash equal to such fraction multiplied by the Conversion Price.
(f) Mechanics of Conversion. The Company shall not be required to issue or deliver the Conversion Shares until the holder of the Note has surrendered the Note to the Company. Such conversion may be made contingent upon the closing of the Next Equity Financing, Non-Qualified Financing or Corporate Transaction, as applicable.
3.1 Initial Closing. The initial closing (the “Initial Closing”) of the purchase of the Notes in return for the Consideration paid by each Lender shall be held remotely via exchange of documents and signatures at 10:00 a.m. local time on _________, 2018 or at such other time and place as shall be mutually agreed upon orally or in writing by the Company and Lenders purchasing a majority in interest of the aggregate principal amount of the Notes to be sold. At the Initial Closing, each Lender shall deliver the Consideration to the Company and the Company shall deliver to each Lender one or more executed Notes in return for the respective Consideration provided to the Company.
3.2 Subsequent Closing. In any subsequent closing (each, a “Subsequent Closing”), the Company may sell additional Notes subject to the terms of this Agreement to any Lender as it shall select, provided that the aggregate amount of Consideration received by the Company pursuant to this Agreement does not exceed $___________. Any subsequent purchasers of Notes shall become a party to, and shall be entitled to receive Notes in accordance with, this Agreement. Each Subsequent Closing shall take place at such locations and at such times as shall be mutually agreed upon orally or in writing by the Company and Lenders purchasing a majority in interest of the aggregate principal amount of the Notes to be sold at such Subsequent Closing, provided, however, that in no event shall any Subsequent Closing occur later than _________.
In connection with the transactions provided for herein, the Company hereby represents and warrants to the Lenders, as of the date of this Agreement, that:
4.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the Company or its business or properties.
4.2 Authorization. Except for the authorization and issuance of the shares issuable in connection with the Next Equity Financing, all corporate action required to be taken by the Company’s board of directors and stockholders in order to authorize the Company to enter into and perform this Agreement and each of the Notes has been taken prior to the Initial Closing, and such action has not been rescinded or modified prior to the Initial Closing. The Agreement and each of the Notes, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.3 No Conflicts. Neither the authorization, execution and delivery of this Agreement, nor the issuance and delivery of the Notes, nor the consummation of the transactions contemplated hereby or thereby will conflict with or result in any violation of or breach or default under (in each case, with or without the passage of time and giving of notice) (i) any provisions of its Certificate of Incorporation or its bylaws, (ii) any instrument, judgment, order, writ or decree applicable to the Company or any of its assets, (iii) any note, indenture, or mortgage to which it is a party, (iv) any lease, agreement, contract, purchase order, license or permit to which the Company is a party or by which the Company is bound or which is applicable to the Company, or which gives any party with rights thereunder the right to terminate, modify, accelerate or otherwise change the existing rights or obligations of the Company thereunder, or (v) any provision of any federal or state statute, rule or regulation applicable to the Company, the violation of which statute, rule or regulation would have a material adverse effect on the Company or its business or properties, or constitute an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company.
4.4 No Governmental or Other Consent. Assuming the accuracy of the representations made by the Lenders in Section 5 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority or any other entity or person is required on the part of the Company in connection with the execution and delivery of the Agreement, the issuance and delivery of the Notes, and the consummation of the transactions contemplated hereby and thereby.
4.5 Capitalization of the Company. The authorized capital stock of the Company consists of _________ shares of Common Stock and _____________. Attached as Exhibit C is a true and correct copy of the Company’s capitalization table after giving effect to the Initial Closing. Attached as Exhibit D is a true and correct copy of the Company’s certificate of incorporation and all amendments thereto, each as filed with the Secretary of State of the State of Delaware. All of the outstanding shares of Common Stock and _______ of the Company have been duly and validly authorized and issued and are fully paid and non-assessable, and were issued in compliance with all applicable federal and state securities laws. There are no existing agreements, options, commitments, rights of first refusal or other rights with, of or to any entity or person to acquire any of the assets, properties or rights of the Company or any interest therein, except for ____________.
4.6 Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Company’s knowledge, currently threatened (i) against the Company or any officer, director or employee of the Company (in the case of an officer, director or employee, such as would affect the Company); (ii) that questions the validity of the Agreement, the issuance and delivery of the Notes or the right of the Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby; or (iii) that would reasonably be expected to have, either individually or in the aggregate, a material adverse effect on the Company or its business or properties. The Company is not and to the Company's knowledge none of its officers, directors or employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or employees, such as would adversely affect the Company). There is no action, suit, proceeding or investigation by the Company pending or which the Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or pursuant to any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their services provided in connection with the Company’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.
4.7 Intellectual Property. The Company owns, possesses or has the right to use in the operation of its business all patents, trademarks, copyrights and trade secrets as may be necessary for its business as now conducted and as presently proposed to be conducted. The Company has and will have full right and authority to utilize the processes, systems and techniques presently employed or proposed to be employed by it in the design, development and manufacture of its products. The Company has not received any formal or informal notice of infringement or other compliant that the Company’s operations traverse or infringe rights upon the intellectual property rights of other persons, nor does the Company have any reason to believe there has been any such infringement.
4.8 Proprietary Information and Invention Assignment. Each current and former employee and consultant of the Company has executed a confidential information and invention assignment agreement. No current or former employee or consultant of the Company has excluded any work or invention from his or her assignment of inventions. To the knowledge of the Company, no such employee or consultant is in violation of such confidential information and invention assignment agreement.
4.9 Liabilities. The Company has no liabilities or obligations, contingent or otherwise, in excess of $25,000 individually or $100,000 in the aggregate.
In connection with the transactions provided for herein, each Lender hereby represents and warrants, severally and not jointly, to the Company, as of the date of this Agreement, that:
5.1 Authorization. This Agreement constitutes such Lender’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. Such Lender represents that it has full power and authority to enter into this Agreement.
5.2 Purchase Entirely for Own Account. Such Lender acknowledges that this Agreement is made with such Lender in reliance upon such Lender’s representation to the Company that the Notes, the Conversion Shares, and any Equity Securities issuable upon conversion of the Conversion Shares (collectively, the “Securities”) will be acquired for investment for such Lender’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Lender has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Lender further represents that such Lender does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.
5.3 Disclosure of Information. Such Lender has had an opportunity to ask questions and receive answers from the Company regarding the Company’s business, management, financial affairs and the terms and conditions of the offering of the Securities. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 4 of this Agreement or the right of the Lenders to rely thereon.
5.4 Investment Experience. Such Lender is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, such Lender also represents it has not been organized solely for the purpose of acquiring the Securities.
5.5 Accredited Investor. Such Lender is an “accredited investor” within the meaning of Rule 501 of Regulation D of the Securities and Exchange Commission (the “SEC”), as presently in effect.
5.6 Restricted Securities. Such Lender understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. Such Lender represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act.
5.7 Further Limitations on Disposition. Without in any way limiting the representations and warranties set forth above, such Lender further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 5, Section 7.11 and:
(a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
(b) (i) such Lender has notified the Company of the proposed disposition and has furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition and (ii) if reasonably requested by the Company, such Lender shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.
Such Lender shall not make any disposition of any Note, Conversion Share or Securities to any of the Company’s competitors as such is in good faith determined by the Company.
5.8 Legends. It is understood that the Securities may bear the following legend:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNLESS (A) A
REGISTRATION STATEMENT HAS BECOME EFFECTIVE AND IS IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
ACT, (B) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE
ACT IS DELIVERED TO THE COMPANY, (C) THE SECURITIES ARE SOLD PURSUANT TO RULE 144 UNDER THE ACT OR (D)
THE HOLDER HEREOF OTHERWISE ESTABLISHES TO THE SATISFACTION OF THE COMPANY THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.”
5.9 Further Representations by Foreign Lenders. If such Lender is not a United States person, such Lender hereby represents that he or she has satisfied himself or herself as to the full observance of the laws of his or her jurisdiction in connection with any invitation to subscribe for the Note(s) or any use of this Agreement, including (i) the legal requirements within his or her jurisdiction for the purchase of the Note(s), (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or other transfer of the Note(s). Such Lender’s subscription and payment for, and his or her continued beneficial ownership of the Note(s), will not violate any applicable securities or other law of his or her jurisdiction.
6.1 Events of Default. The following events shall be considered Events of Default with respect to each Note:
(a) The Company shall default in the payment of any part of the principal or unpaid accrued interest on the Note for more than five (5) days after the Maturity Date or at a date fixed by acceleration or otherwise;
(b) The Company shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition for bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting the material allegations of a petition filed against the Company in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company, or of all or any substantial part of the properties of the Company, or the Company or its respective directors or majority stockholders shall take any action looking to the dissolution or liquidation of the Company;
(c) Within thirty (30) days after the commencement of any proceeding against the Company seeking any bankruptcy reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or within thirty (30) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or
(d) The Company shall fail to observe or perform any other obligation to be observed or performed by it under this Agreement or the Notes, within 30 days after written notice from the Majority Note Holders to perform or observe the obligation.
6.2 Remedies. (i) Upon the occurrence of an Event of Default under Section 6.1(a) or Section 6.1(d) hereof, at the option and upon the declaration of the Majority Note Holders, and (ii) upon the occurrence of an Event of Default under Section 6.1(b) or Section 6.1(c) hereof, the entire unpaid principal and accrued and unpaid interest on the Notes shall, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, and a holder of a Note may, immediately and without expiration of any period of grace, enforce payment of all amounts due and owing under the Note and exercise any and all other remedies granted to such holder at law, in equity or otherwise.
7.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties, provided, however, that the Company may not assign its obligations under this Agreement without the written consent of the Majority Note Holders. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
7.2 Governing Law. This Agreement and the Notes shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents, made and to be performed entirely within the State of Delaware.
7.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
7.5 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 7.5):
If to the Company:
[Name]
[Address]
Attention: Chief Executive Officer
If to Lenders:
At the respective addresses shown on the signature pages hereto.
7.6 Finder’s Fee. Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. Lender agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which Lender or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless Lender from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.
7.7 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. Each Party shall pay its own costs and expenses incurred with respect to the negotiation, execution, delivery and performance of this Agreement.
7.8 Entire Agreement; Amendments and Waivers. This Agreement, the Notes and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. The Company’s agreements with each of the Lenders are separate agreements, and the sales of the Notes to each of the Lenders are separate sales. Nonetheless, any term of this Agreement or the Notes may be amended and the observance of any term of this Agreement or the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Majority Note Holders. Any waiver or amendment effected in accordance with this Section shall be binding upon each party to this Agreement and any holder of any Note purchased under this Agreement at the time outstanding and each future holder of all such Notes. The Company shall give prompt notice of any amendment hereof or waiver hereunder to any Lender that did not consent in writing to such amendment, termination or waiver.
7.9 Effect of Amendment or Waiver. Each Lender acknowledges that by the operation of Section 7.8 hereof, the Majority Note Holders will have the right and power to diminish or eliminate all rights of such Lender under this Agreement and each Note issued to such Lender.
7.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
7.11 “Market Stand-Off” Agreement. Each Lender hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Equity Securities (whether such Equity Securities are then owned by such Lender or thereafter acquired), or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s Equity Securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section 7.11 shall apply only to the Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement and shall only be applicable to such Lender if all officers and directors and greater than five percent (5%) stockholders of the Company enter into similar agreements. The underwriters in connection with the Initial Public Offering are intended third party beneficiaries of this Section 7.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Lender further agrees to execute such agreements as may be reasonably requested by the underwriters in the Initial Public Offering that are consistent with this Section 7.11 that are necessary to give further effect thereto.
7.12 Pro Rata Rights. The Company hereby grants to each Lender the right to purchase up to its Pro Rata Portion of any Equity Securities that are issued by the Company in any Equity Financing (other than the issuance of Notes pursuant to this Agreement) at the price and on the terms the Equity Securities are offered to other investors in the Equity Financing. The Company shall give each Lender a written notice of its bona fide intention to issue the Equity Securities, describing the type of Equity Securities and the price and the general terms upon which the Company proposes to issue the Equity Securities. Each Lender shall have ten days from the date such notice is effective, to agree in writing to purchase up to such Lender’s Pro Rata Portion of the Equity Securities. Such purchase shall be completed at the same closing as that of any third party purchasers or at an additional closing thereunder and shall be subject to such Lender signing any purchase and other documents signed by the other investors in the Equity Financing. The rights provided by this Section 7.12 shall terminate upon the earliest to occur of (i) immediately following the initial closing of the Next Equity Financing; provided, however, that such rights shall survive such closing to the extent such rights are not reflected in the definitive documentation for the Next Equity Financing or are not available to the Lender; and (ii) immediately prior to the consummation of Initial Public Offering or Corporate Transaction.
7.13 Information Rights. The Company shall furnish each Lender:
(a) annual unaudited consolidated financial statements of the Company and its subsidiaries, including an unaudited consolidated balance sheet as of the end of the fiscal year, an unaudited consolidated statement of operations and an unaudited consolidated statement of cash flows of the Company and its subsidiaries for such fiscal year, within 120 days after the end of such fiscal year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, certified by the chief financial officer of the Company;
(b) quarterly unaudited consolidated financial statements of the Company and its subsidiaries, including an unaudited consolidated balance sheet as of the end of such fiscal quarter, an unaudited consolidated statement of operations and an unaudited consolidated statement of cash flows of the Company and its subsidiaries for such quarter, within 45 days after the end of such quarter, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments;
(c) a budget prior to fiscal year-end, subject to changes resulting from normal year-end audit adjustments; and
(d) promptly after the commencement thereof, notice of (i) all suits, claims, proceedings and investigations that could materially and adversely affect the Company or any of its affiliates or with respect to this Agreement or the Notes; and (ii) the occurrence of any event which constitutes an Event of Default.
The rights provided by this Section 7.13 shall terminate upon the earliest to occur of (i) immediately following the initial closing of the Next Equity Financing; provided, however, that such rights shall survive such closing to the extent such rights are not reflected in the definitive documentation for the Next Equity Financing or are not available to the Lender; and (ii) immediately prior to the consummation of the Initial Public Offering or Corporate Transaction.
7.14 Limitation on Senior Indebtedness. The Company will not, directly or indirectly, incur, create, issue, assume, guarantee or otherwise become liable for any indebtedness or obligation that is senior in terms of right of repayment of the principal amount of such indebtedness or obligation to the indebtedness evidenced by the Notes.
7.15 MFN Right. The Company agrees that, until the earliest of (a) the closing of the Next Equity Financing or (b) immediately prior to the consummation of the Initial Public Offering or a Corporate Transaction, if the Company shall offer any more favorable investment terms to another investor, the same terms shall be automatically deemed to apply retroactively to any and all investments in the Company by the Lenders, whether pursuant to the Notes or otherwise. The Company agrees to notify the Lenders promptly upon proposing to receive from another investor terms that are more favorable to the Lender than those set forth in the Notes and this Agreement.
7.16 Cryptocurrencies. Without the prior written consent of the Majority Note Holders, the Company shall not, directly or indirectly, through an affiliate or otherwise, sell, issue, sponsor, create or distribute any digital tokens, blockchain-based assets, cryptocurrency or any other digital assets, including through a Simple Agreement for Future Tokens or other agreement, pre-sale, initial coin offering, token distribution event or crowdfunding.
7.17 Stock Purchase Agreement. Each Lender understands and agrees that the conversion of the Notes into Conversion Shares may require such Lender’s execution of certain agreements in the form agreed to by investors in the Next Equity Financing or the Non-Qualified Financing, as applicable, relating to the purchase and sale of such securities as well as registration, co sale, rights of first refusal, rights of first offer and voting rights, if any, relating to such securities.
7.18 Exculpation Among Lenders. Each Lender acknowledges that it is not relying upon any person, firm, corporation or stockholder, other than the Company and its officers and directors in their capacities as such, in making its investment or decision to invest in the Company. Each Lender agrees that no other Lender nor the respective controlling persons, officers, directors, partners, agents, stockholders or employees of any other Lender shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase and sale of the Securities.
7.19 Further Assurance. From time to time, the Company shall execute and deliver to the Lenders such additional documents and shall provide such additional information to the Lenders as any Lender may reasonably require to carry out the terms of this Agreement and the Notes and any agreements executed in connection herewith or therewith, or to be informed of the financial and business conditions and prospects of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
______________, INC.
By: ______________
Name: ______________
Title: ______________
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
LENDER: BLOOMBERG BETA 2019 L.P.
By: _________________
Name: _________________
Title: Authorized Signatory
Address:
140 New Montgomery Street, Suite 2200
San Francisco, CA, 94105
Email: docs@bloombergbeta.com
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
LENDER: [NAME OF LENDER]
By: _________________
Name: _________________
Address: _________________
Liquidation preference: In the event of a liquidation, dissolution or winding up of the Company, the Preferred will have the right to receive the original purchase price plus declared but unpaid dividends prior to any distribution to the common stock. The remaining assets will be distributed pro rata to the holders of common stock. A sale of all or substantially all of the Company’s assets or a merger or consolidation of the Company with any other company or a change of control will be treated as a liquidation of the Company.
Conversion: The Preferred may be converted at any time, at the option of the holder, into shares of common stock. The conversion rate will initially be 1:1, subject to anti-dilution and other customary adjustments.
Automatic conversion: Each share of Preferred will automatically convert into common stock, at the then applicable conversion rate, upon (i) the closing of a firm commitment underwritten public offering of common stock, or (ii) the consent of the holders of at least a majority of the then outstanding shares of Preferred.
Anti-dilution: The conversion price of the Preferred will be subject to adjustment, on a broad-based weighted average basis, if the Company issues additional securities at a price per share less than the then applicable conversion price, subject to customary exceptions.
General voting rights: Each share of Preferred will have the right to a number of votes equal to the number of shares of common stock issuable upon conversion of each such share of Preferred. The Preferred will vote with the common stock on all matters except as specifically provided herein or as otherwise required by law.
Protective provisions: So long as any of the Preferred is outstanding, consent of the holders of at least a majority of the Preferred will be required for any action that: (i) alters any provision of the certificate of incorporation if it would adversely alter the rights, preferences, privileges or powers of the Preferred; (ii) changes the authorized number of shares; (iii) authorizes a new series of preferred stock having rights senior to or on parity with the Preferred; (iv) redeems or repurchases any shares (other than pursuant to employee or consultant agreements); (v) declares or pays any dividend; (vi) changes the number of directors; (vii) approves any merger, sale of assets or other corporate reorganization or acquisition, including any change of control, or any liquidation or dissolution, or (viii) sells, issues, sponsors, creates or distributes any digital tokens, blockchain-based assets, cryptocurrency or any other digital assets, including through a Simple Agreement for Future Tokens or other agreement, pre-sale, initial coin offering, token distribution event or crowdfunding.
Right to maintain proportionate ownership: Each holder of Preferred (or one or more of its affiliates) will have a right to purchase its pro rata share of any offering of new securities by the Company, subject to customary exceptions. The pro rata share will be based on the ratio of (x) the number of shares of common stock held by such holder (on an as-converted basis) to (y) the Company’s outstanding fully-diluted capitalization (on an as-converted and as-exercised basis).
Right of first refusal: Holders of Preferred will have a right of first refusal, second to the Company’s right, with respect to sales of common stock by the Company’s founders.
Information rights: As soon as practicable, the Company will deliver to each holder of Preferred (i) an unaudited balance sheet as of fiscal year end and (ii) unaudited statements of income and cash flows for such fiscal year. The information rights will terminate upon an initial public offering