THIS AGREEMENT is made as of [Date of SAFE] by and between:
[INVESTMENT ENTITY], a limited partnership formed pursuant to the laws of the Province of [Jurisdiction] (the “Investor”)
AND:[CORPORATION NAME], a corporation formed pursuant to the laws of [Jurisdiction] (the “Corporation”)
- The “Purchase Amount” of this SAFE is $10,000.00.
- The “Valuation Cap” of this SAFE is $2M CAD.
- The “Discount Rate” of this SAFE is 80%.
- Defined terms used herein shall have the meanings ascribed to them in Schedule A.
- (a) Subject to the terms and conditions of this SAFE, the Investor will pay the Purchase Amount to the Corporation as of the date first written above, and the Corporation will issue to the Investor the right to certain shares in the capital of the Corporation.
- (a) Equity Financing. If there is a transaction or series of related transactions with the principal purpose of raising capital pursuant to which the Corporation issues and sells Shares at a fixed pre-money valuation generating gross proceeds to the Corporation of at least $250,000.00 (excluding conversion of convertible instruments) from one or several investors dealing at arm’s length with the Corporation and its founder(s) (which, for purposes of this definition, shall not include extended family and friends of the Corporation’s founder(s) but may include angel investors who are unrelated to the Corporation’s founder(s)) (such a transaction or series of related transactions, an “Equity Financing”) before the expiration or termination of this SAFE, the Corporation will automatically issue to the Investor that number of Shares (of the class of Shares issued in the Equity Financing) equal to the Purchase Amount divided by the Conversion Price.
In connection with the issuance of Shares to the Investor pursuant to an Equity Financing, the Investor will execute and deliver to the Corporation all transaction documents related to the Equity Financing, provided (a) that such documents are the same documents to be entered into with the purchasers of the Equity Financing, with appropriate variations for the Investor and similar investors if applicable; (b) that the Investor will benefit from the same representations and warranties, covenants, and indemnities made by the Corporation and, if applicable, its founders and employees, to the purchasers of the Equity Financing; and (c) that such documents and any documents which would be applicable to the Investor pursuant to any drag-along or similar provision applicable to the Investor:
(i) do not have representations and warranties of the Investor which are not limited to customary representations and warranties pertaining to authority, accredited investor status, ownership, and the ability to convey title to the shares;
(ii) do not have any potential liability of the Investor for any action, omission, or inaccuracy of any representation and warranty made by any person other than the Investor or the Corporation and, in the case of the Corporation, do not have any potential liability which is joint and several with any other person and not limited to the Investor’s pro-rata ownership of the Corporation;
(iii) do not have any potential liability of the Investor which is not limited to the shares in the capital of the Corporation owned by the Investor or, in the context of the application of a drag-along provision, which is not limited, except in the event of Investor’s own fraud (and not fraud committed by any other person including the Corporation), to the purchase price effectively received by the Investor;
(iv) in the case the Investor is an institutional investor, do not have any non-compete, non-solicitation, business limiting, exclusivity, or similar provisions directly or indirectly prohibiting, limiting, or otherwise restraining the Investor from engaging in any line of business, in any geography or otherwise;
(v) provides that in the event of any sale transaction of the Corporation that the aggregate proceeds from such sale transaction shall be distributed as if such sale constituted a Liquidation Event as defined in the Corporation’s articles or other charter documents; and
(vi) contains reporting obligations to the benefit of the Investor at least as favourable as those contained in this SAFE.
- (b) Subsequent Convertible Financing. In the event of a Subsequent Convertible Security Financing prior to an Equity Financing or the termination of this SAFE, the Investor may elect to invest additional capital in the Corporation upon the same terms and conditions as the other investors in such Subsequent Convertible Security Financing, pro rata the Investor’s participation in the Corporation on an as-converted basis immediately before such Subsequent Convertible Security Financing. The rights of the Investor under this Section (b) are in addition to those set forth in Section (c) below.
- (c) Most Favoured Nation. In the event of a Subsequent Convertible Security Financing prior to an Equity Financing or the termination of this SAFE, the Corporation will promptly provide the Investor with written notice thereof, together with a copy of all documentation relating to such Subsequent Convertible Securities and, upon written request of the Investor, any additional information related to such Subsequent Convertible Securities as may be reasonably requested by the Investor. In the event the Investor determines that the terms of the Subsequent Convertible Securities are preferable to the terms of this SAFE, the Investor will notify the Corporation in writing. Promptly after receipt of such written notice from the Investor, the Corporation shall amend and restate this SAFE to be identical to the instrument(s) evidencing the Subsequent Convertible Securities.
- (d) Liquidity Event. If there is a (i) a Change of Control, or (ii) the closing of the Corporation’s first firm commitment underwritten initial public offering of Shares (each, a “Liquidity Event”) before the expiration or termination of this SAFE, the Investor will, at its option, either (i) receive a cash payment equal to the Purchase Amount, or (ii) automatically receive from the Corporation a number of shares of Common Shares equal to the Purchase Amount divided by the Liquidity Price, if the Investor fails to select the cash option.
In connection with Section 2(b)(i), the Purchase Amount will be due and payable by the Corporation to the Investor immediately prior to, or concurrent with, the consummation of 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 Corporation’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 Common Shares equal to the remaining unpaid Purchase Amount divided by the Liquidity Price.
- (e) Dissolution Event. If there is (i) a voluntary termination of operations; (ii) a general assignment for the benefit of the Corporation’s creditors; or (iii) any other liquidation, dissolution, or winding up of the Corporation (excluding a Liquidity Event), whether voluntary or involuntary (each, a “Dissolution Event”) before this SAFE expires or terminates, the Corporation will pay an amount equal to the Purchase Amount, due and payable to the Investor immediately prior to, or concurrent with, the consummation of the Dissolution Event. The Purchase Amount will be paid prior and in preference to any Distribution of any of the assets of the Corporation to holders of outstanding Shares by reason of their ownership thereof. If immediately prior to the consummation of the Dissolution Event, the assets of the Corporation legally available for distribution to the Investor and all holders of all other SAFEs (the “Dissolving Investors”), as determined in good faith by the Corporation’s board of directors, are insufficient to permit the payment to the Dissolving Investors of their respective Purchase Amounts, then the entire assets of the Corporation 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 2(c).
- (f) Termination. This instrument will expire and terminate (without relieving the Corporation of any obligations arising from a prior breach of or non-compliance with this instrument) upon either (i) the issuance of equity to the Investor pursuant to Section 2(a) or Section 2(b)(ii); or (ii) the payment, or setting aside for payment, of amounts due the Investor pursuant to Section 2(b)(i) or Section 2(c).
- CORPORATION REPRESENTATIONS
- (a) The Corporation is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation, and has the power and authority to own, lease, and operate its properties and carry on its business as now conducted.
- (b) The execution, delivery, and performance by the Corporation of this SAFE is within the power of the Corporation 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 Corporation. This SAFE constitutes a legal, valid, and binding obligation of the Corporation, enforceable against the Corporation 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 Corporation, it is not in violation of (i) its current articles, bylaws, or other charter documents; (ii) any material statute, rule, or regulation applicable to the Corporation; or (iii) any material indenture or contract to which the Corporation is a party or by which it is bound, where, in each case, such violation or default, individually, or together with all such violations or defaults, could reasonably be expected to have a material adverse effect on the Corporation.
- (c) The performance and consummation of the transactions contemplated by this SAFE do not and will not: (i) violate any material judgment, statute, rule, or regulation applicable to the Corporation; (ii) result in the acceleration of any material indenture or contract to which the Corporation is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset, or revenue of the Corporation or the suspension, forfeiture, or nonrenewal of any material permit, license, or authorization applicable to the Corporation, its business, or its operations.
- (d) No consents or approvals are required in connection with the performance of this SAFE, other than: (i) the Corporation’s corporate approvals; (ii) any qualifications or filings under applicable securities laws; and (iii) necessary corporate approvals for the authorization and issuance of Shares issuable pursuant to Section 2.
- (e) To its knowledge, the Corporation owns or possesses (or can obtain on commercially reasonable terms) sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes, and other intellectual property rights necessary for its business as now conducted and as currently proposed to be conducted, without any conflict with, or infringement of the rights of, others.
- (f) The Corporation qualifies as a “private issuer” and is not a “reporting issuer”, as such terms are defined under National Instrument 45-106 – Prospectus Exemptions.
- (g) The table attached as Schedule B (the “Cap Table”) sets out all of the issued and outstanding Capital Shares and names their holders, the number and class of shares held by each such holder and the percentage of voting and participating rights held by each such holder. All such Capital Shares were validly issued and are allocated amongst the holders specified in the Cap Table, with good and valid title, free and clear of all claims, security interests, hypothecs, control, or any other encumbrances whatsoever. Other than as disclosed in the Cap Table, no warrant, option or any other right to purchase or redeem securities of the Corporation has been authorized or is outstanding and there is no agreement providing for any issuance thereof.
- (h) The Corporation is conducting its business in compliance in all material respects with all applicable laws, rules, and regulations of each jurisdiction in which its business is carried on.
- (i) There is no litigation or governmental proceedings commenced or pending against or affecting the Corporation or its assets, in which a decision adverse to the Corporation would constitute or result in a material adverse change in the business, operations, properties or assets or in the condition, financial or otherwise, of the Corporation.
- (j) Neither the Corporation nor any shareholder holding more than 25% of the Corporation Capitalization (and if such shareholder is not a natural person, any natural person that is, directly or indirectly, ultimately a shareholder), director, officer, or senior manager of the Corporation has been found guilty of an indictable offence under the Criminal Code (Canada) or has pleaded guilty to such an offence or has committed an act or omission that has or is likely to materially harm the reputation of the Corporation or its shareholders or the business or sound management of the Corporation.
- (k) The Corporation does not have any information or knowledge of any facts relating to its business, operations, property, or assets or to its condition, financial, or otherwise, which it has not disclosed to the Investor in writing and which, if known to the Investor, might reasonably be expected to deter the Investor from investing or from doing so on the same terms and conditions.
4. INVESTOR REPRESENTATIONS
- (a) The Investor has full legal capacity, power, and authority to execute and deliver this SAFE and to perform its obligations hereunder. This SAFE constitutes a 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 represents, warrants, covenants, and certifies to the Corporation that the Investor is qualified under an exemption from prospectus requirements under National Instrument 45-106 since it is an accredited investor within the meaning of paragraph (m) of the definition of “accredited investor” in subsection 1.1 of National Instrument 45-106, namely “a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements”.
- (c) The Investor is purchasing this instrument and the securities to be acquired by the Investor hereunder for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. 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.
- (a) Amendments. Any provision of this instrument may be amended, waived, or modified only upon the written consent of the Corporation and the Investor.
- (b) Notice. Any notice required or permitted by this instrument will be deemed sufficient when delivered personally or by overnight courier or sent by email to the relevant address listed on the signature page, or 48 hours after being deposited in the mail as certified or registered mail with postage prepaid, addressed to the party to be notified at such party’s address listed on the signature page, as subsequently modified by written notice.
- (c) No Rights as Shareholder. The Investor is not entitled, as a holder of this instrument, to vote or receive dividends or be deemed the holder of Shares for any purpose, nor will anything contained herein be construed to confer on the Investor, as such, any of the rights of a shareholder of the Corporation.
- (d) Assignment. Neither this instrument nor the rights contained herein may be assigned, by operation of law or otherwise, by either party without the prior written consent of the other; provided, however, that this instrument and/or the rights contained herein may be assigned without the Corporation’s consent by the Investor to any other entity who directly or indirectly, controls, is controlled by or is under common control with the Investor, including, without limitation, any general partner, officer, or director of the Investor, or any venture capital fund now or hereafter existing which is controlled by one or more general partners or managing members of, or shares the same management Corporation with, the Investor; and provided, further, that the Corporation may assign this instrument in whole, without the consent of the Investor, in connection with a reincorporation to change the Corporation’s domicile.
- (e) Severability. In the event any one or more of the provisions of this instrument is for any reason held to be invalid, illegal, or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this instrument operate or would prospectively operate to invalidate this instrument, then and in any such event, such provision(s) only will be deemed null and void and will not affect any other provision of this instrument and the remaining provisions of this instrument will remain operative and in full force and effect and will not be affected, prejudiced, or disturbed thereby.
- (f) Governing Law. All rights and obligations hereunder will be governed by the laws of the Province of Québec and the federal laws of Canada applicable therein, without regard to the conflicts of law provisions of such jurisdiction.
- (g) Currency. All references to currency in this instrument refer to the lawful currency of Canada.
- (h) Confidentiality. The Corporation and the Investor, and any other persons acting on their behalf, shall keep this instrument in strict confidence and shall not use any information or materials for any purpose other than in considering or in connection with the transaction contemplated herein, and shall not issue any public statement concerning this instrument or the transaction contemplated herein without the other party’s prior written approval.
- (i) Costs. All other parties shall be responsible for their own costs.
- (j) Language Law. The parties hereto have requested that this SAFE and any notice or ancillary document be drafted in English. Les parties ont exigé que ce SAFE et tout avis ou document accessoire soit rédigé en anglais.
IN WITNESS WHEREOF, the undersigned parties have caused this SAFE to be duly executed and delivered as of the date first written above.
- “Canadian Securities Laws” means, collectively, the securities laws of the Provinces and Territories of Canada and the regulation and rules made thereunder, together with all applicable published policy statements, instruments, orders, notices, and rulings of the Canadian Securities Administrators or of any Province or Territory of Canada.
- “Change of Control” means: (i) a transaction or series of related transactions in which any “person” (within the meaning of applicable Canadian Securities Laws), becomes the beneficial owner, directly or indirectly, of more than 50% of the outstanding voting securities of the Corporation having the right to vote for the election of members of the Corporation’s board of directors; (ii) any reorganization, merger, or consolidation of the Corporation, other than a transaction or series of related transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Corporation or such other surviving or resulting entity; or (iii) a sale, lease, or other disposition of all or substantially all of the assets of the Corporation.
- “Corporation Capitalization” means the sum, as of immediately prior to the Equity Financing, of: (1) all Shares (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants, and other convertible securities, but excluding: (A) this instrument, (B) all other SAFEs, and (C) convertible promissory notes; and (2) all Shares reserved and available for future grant under any equity incentive or similar plan of the Corporation, and/or any equity incentive or similar plan to be created or increased in connection with the Equity Financing.
- “Conversion Price” means either: (1) the price per share equal to the Valuation Cap divided by the Corporation Capitalization; or (2) the price per share of the Shares sold in the Equity Financing (other than Shares issued pursuant to this SAFE or other convertible instruments) multiplied by the Discount Rate, whichever calculation results in a greater number of Shares.
- “Distribution” means the transfer to holders of Shares by reason of their ownership thereof of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Shares payable in Shares, or the purchase or redemption of Shares by the Corporation or its subsidiaries for cash or property other than: (i) repurchases of Shares held by employees, officers, directors, or consultants of the Corporation or its subsidiaries pursuant to an agreement providing, as applicable, a right of first refusal or a right to repurchase shares upon termination of such service provider’s employment or services; or (ii) repurchases of Shares in connection with the settlement of disputes with any shareholder.
- “Liquidity Price” means the price per share equal to the Valuation Cap divided by the number, as of immediately prior to the Liquidity Event, of Shares (on an as-converted basis) outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants, and other convertible securities, but excluding: (i) Shares reserved and available for future grant under any equity incentive or similar plan; (ii) this SAFE; (iii) other SAFEs; and (iv) convertible promissory notes.
- “Shareholders’ Agreement” means a written agreement among the Corporation and its shareholders which among other terms provides the Investor a right to purchase its pro rata share of private placements of securities by the Corporation occurring after the Equity Financing, subject to customary exceptions. For the purposes of this definition, pro rata will be calculated based on the ratio of (1) the number of Shares owned by the Investor immediately prior to the issuance of the securities to (2) the total number of Shares on a fully diluted basis, calculated as of immediately prior to the issuance of the securities.
- “SAFE” means an instrument containing a future right to Shares, similar in form and content to this instrument, purchased by investors for the purpose of funding the Corporation’s business operations.
- “Shares” means shares in the capital of the Corporation.
- “Subsequent Convertible Securities” means securities convertible into Shares that the Corporation may issue after the issuance of this SAFE with the principal purpose of raising capital, including but not limited to, other SAFEs, convertible debt instruments and other convertible securities, provided, however, that Subsequent Convertible Securities excludes: (i) options issued pursuant to any equity incentive or similar plan of the Corporation; (ii) convertible securities issued or issuable to (A) banks, equipment lessors, financial institutions or other persons engaged in the business of making loans pursuant to a debt financing or commercial leasing, or (B) suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions; and (iii) convertible securities issued or issuable in connection with sponsored research, collaboration, technology license, development, original equipment manufacturer (OEM), marketing or other similar agreements or strategic partnerships.
- “Subsequent Convertible Security Financing” means a transaction or series of related transactions with the principal purpose of raising capital pursuant to which the Corporation issues and sells Subsequent Convertible Securities.
[END OF SCHEDULE]