2023 SAFE agreement

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS AGREEMENT AND THE SECURITIES ISSUABLE ON THE CONVERSION HEREOF SHALL NOT TRADE THEM BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF (i) THE DATE OF ISSUANCE, AND (ii) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA.

[CORPORATION NAME]

SAFE
(Simple Agreement for Future Equity)

THIS AGREEMENT is made as of [Date of SAFE] by and between:

[CORPORATION NAME, a [corporation/limited partnership/trust] formed pursuant to the laws of [Canada OR the Province of XX]

OR [INVESTOR NAME, an individual resident in the Province of XX] (the “Investor”)

AND:

[CORPORATION NAME], a corporation formed pursuant to the laws of [Jurisdiction] (the “Corporation”)

RECITALS:

The “Purchase Amount” of this SAFE is $10,000.00.
The “Valuation Cap” of this SAFE is $2.5M CAD.
The “Discount Rate” of this SAFE is 80%.
Defined terms used herein shall have the meanings ascribed to them in Schedule A.

INVESTMENT

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.

EVENTS

Equity Financing. If there is an Equity Financing before the termination of this SAFE, on the initial closing of such Equity Financing, the Corporation will automatically issue to the Investor that number of SAFE Preferred Shares equal to the Purchase Amount divided by the SAFE Conversion Price.

In connection with the issuance of SAFE Preferred 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 that such documents (a) 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) make it so that the Investor will benefit from the same representations and warranties, covenants, and indemnities made by the Corporation to the purchasers of the Equity Financing; and (c) have customary exceptions to any drag-along applicable to the Investor, including (without limitation) limited representations, warranties, liability and indemnification obligations for the Investor.

Liquidity Event. If there is a Liquidity event before the termination of this SAFE, the Investor will automatically be entitled (subject to the liquidation priority set forth in Section 2(d) below) to receive a portion of Proceeds, due and payable to the Investor immediately prior to, or concurrent with, the consummation of such Liquidity Event, equal to the greater of (i) the Purchase Amount (the “Cash-Out Amount”) or (ii) the amount payable on the number of Common Shares equal to the Purchase Amount divided by the Liquidity Price (the “Conversion Amount”).

If any of the Corporation’s securityholders are given a choice as to the form and amount of Proceeds to be received in a Liquidity Event, the Investor will be given the same choice, provided that the Investor may not choose to receive a form of consideration that the Investor would be ineligible to receive as a result of the Investor’s failure to satisfy any requirement or limitation generally applicable to the Corporation securityholders, or under any applicable laws.

Notwithstanding the foregoing, in connection with a Change of Control intended to qualify as a tax-free reorganization, the Corporation may reduce the cash portion of Proceeds payable to the Investor by the amount determined by its board of directors in good faith for such Change of Control to qualify as a tax-free reorganization, provided that such reduction (A) does not reduce the total Proceeds payable to such Investor and (B) is applied in the same manner and on a pro rata basis to all securityholders who have equal priority to the Investor under Section 2(d).

Dissolution Event. If there is a Dissolution Event before the termination of this Safe, the Investor will automatically be entitled (subject to the liquidation priority set forth in Section 2(d) below) to receive a portion of Proceeds equal to the Cash-Out Amount, due and payable to the Investor immediately prior to the consummation of the Dissolution Event.
Liquidation Priority. In a Liquidity Event or Dissolution Event, this Safe is intended to operate like standard non-participating Preferred Shares. The Investor’s right to receive its Cash-Out Amount is:

(i) Junior to payment of outstanding indebtedness and creditor claims, including contractual claims for payment and convertible promissory notes (to the extent such convertible promissory notes are not actually or notionally converted into Capital Shares);

(ii) On par with payments for other Safes and/or Preferred Shares, and if the applicable Proceeds are insufficient to permit full payments to the Investor and such other Safes and/or Preferred Shares, the applicable Proceeds will be distributed pro rata to the Investor and such other Safes and/or Preferred Shares in proportion to the full payments that would otherwise be due; and

(iii) Senior to payments for Common Shares.

The Investor’s right to receive its Conversion Amount is (A) on par with payments for Common Shares and other Safes and/or Preferred Shares who are also receiving Conversion Amounts or Proceeds on a similar as-converted to Common Share basis, and (B) junior to payments described in clauses (i) and (ii) above (in the latter case, to the extent such payments are Cash-Out Amounts or similar liquidation preferences).

Termination. This SAFE will automatically terminate (without relieving the Corporation of any obligations arising from a prior breach of or non-compliance with this SAFE) immediately following the earliest to occur of: (i) the issuance of Capital Shares to the Investor pursuant to the automatic conversion of this SAFE under Section 2(a); or (ii) the payment, or setting aside for payment, of amounts due the Investor pursuant to Section 2(b) or Section 2(c).

CORPORATION REPRESENTATIONS

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.
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.
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.
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.
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.
The Corporation qualifies as a “private issuer” and is not a “reporting issuer”, as such term is defined in Ontario pursuant to Section 73.4 of the Securities Act (Ontario) and elsewhere in Canada under National Instrument 45-106 – Prospectus Exemptions.
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.

INVESTOR REPRESENTATIONS

The Investor has full legal capacity, power, and authority to execute and deliver this SAFE and to perform its obligations hereunder. This SAFE 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.
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” as defined in subsection 1.1 of National Instrument 45-106. [Note: Important to double-check with investor!]
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.

MISCELLANEOUS

Amendments. Any provision of this instrument may be amended, waived, or modified only upon the written consent of the Corporation and the Investor.
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.
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.
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.
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.
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.
Currency. All references to currency in this instrument refer to the lawful currency of Canada.
Costs. All other parties shall be responsible for their own costs.
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.

(Signature page follows)

IN WITNESS WHEREOF, the undersigned parties have caused this SAFE to be duly executed and delivered as of the date first written above.

CORPORATION

[CORPORATION NAME]

By: _____________________________

Name:

Title:

INVESTOR

[INVESTOR NAME]

By: _____________________________

Name:

Title:

SCHEDULE A
DEFINITIONS

“Capital Shares” means the shares in the capital of the Corporation, including, without limitation, the “Common Shares” and the “Preferred Shares.”

“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.

“Common Shares” means the Corporation’s common shares or ordinary shares or such other similarly named class of share in the Corporation.

“Corporation Capitalization” is calculated as of immediately prior to the Equity Financing and (without double-counting, in each case calculated on an as-converted to Common Shares basis):

Includes all Capital Shares issued and outstanding;
Includes all Converting Securities;
Includes all (i) issued and outstanding Options and (ii) Promised Options; and
Includes the Unissued Option Pool, except that any increase to the Unissued Option Pool in connection with the Equity Financing will only be included to the extent that the number of Promised Options exceeds the Unissued Option Pool prior to such increase.

“Direct Listing” means an initial listing of the Corporation’s Common Shares (other than Common Shares not eligible for resale ) on a national securities exchange in the United States, Canada or any analogous jurisdiction not involving any underwritten offering of securities in any exchange.

“Dissolution Event” means (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Corporation creditors or (iii) any other liquidation, dissolution or winding up of the Corporation (excluding a Liquidity Event), whether voluntary or involuntary.

“Equity Financing” means a bona fide transaction or series of related transactions with the principal purpose of raising capital pursuant to which the Corporation issues and sells Preferred 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).

“Initial Public Offering” means the closing of the Corporation’s first firm commitment underwritten initial public offering of Common Shares in conjunction with the listing of such Common Shares on any securities exchange, which will be deemed to have occurred upon the consummation of the listing transaction as prescribed under the listing rules of the applicable securities exchange.

“Liquidity Capitalization” is calculated as of immediately prior to the Liquidity Event, and (without double- counting, in each case calculated on an as-converted to Common Shares basis):

Includes all Capital Shares issued and outstanding;
Includes all (i) issued and outstanding Options and (ii) to the extent receiving Proceeds, Promised Options;
Includes all Converting Securities, other than any SAFEs and other convertible securities (including without limitation Preferred Shares) where the holders of such securities are receiving Cash-Out Amounts or similar liquidation preference payments in lieu of Conversion Amounts or similar “as-converted” payments; and
Excludes the Unissued Option Pool.

“Liquidity Event” means (i) a Change of Control, (ii) a Direct Listing or (iii) an Initial Public Offering,

“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.

“Preferred Shares” means the Corporation’s preferred shares or preference shares or such other similarly named class of share in the Corporation.

“Proceeds” means cash and other assets (including without limitation share consideration) that are proceeds from the Liquidity Event or the Dissolution Event, as applicable, and legally available for distribution.

Promised Options” means promised but ungranted Options that are the greater of those (i) promised pursuant to agreements or understandings made prior to the execution of, or in connection with, the term sheet or letter of intent for the Equity Financing or Liquidity Event, as applicable (or the initial closing of the Equity Financing or the consummation of the Liquidity Event, if there is no term sheet or letter of intent), (ii) in the case of an Equity Financing, treated as outstanding Options in the calculation of the Standard Preferred Shares’ price per share, or (iii) in the case of a Liquidity Event, treated as outstanding Options in the calculation of the distribution of the Proceeds.

“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.

“SAFE 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 Standard Preferred 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.

“SAFE Preferred Shares” means the shares of the series of Preferred Shares issued to the Investor in an Equity Financing, having the identical rights, privileges, preferences, seniority, liquidation multiple and restrictions as the shares of Standard Preferred Shares, except that any price-based preferences (such as the per share liquidation amount, initial conversion price and per share dividend amount) will be based on the SAFE Conversion Price.

“Standard Preferred Shares” means the shares of the series of Preferred Shares issued to the investors investing new money in the Corporation in connection with the initial closing of the Equity Financing.

“Unissued Option Pool” means all Capital Shares that are reserved, available for future grant and not subject to any outstanding Options or Promised Options (but in the case of a Liquidity Event, only to the extent Proceeds are payable on such Promised Options) under any equity incentive or similar Corporation plan.