Template co-founder agreement long

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1 Templte co-founder greement long User notes This document is intended for use y the founders of new strt up who wish to provide for some level of clw-ck of cofounder s initil shreholding if he or she: ceses to work for the compny (whether s n employee or contrctor); or fils to mke the contriution required of them to the usiness. This type of rrngement is referred to in the strt up nd venture cpitl world s founder vesting. Founder vesting is common with Silicon Vlley strt ups, nd is ecoming more populr in New Zelnd s co-founders re incresingly meeting through incutors or ccelertor progrmmes rther thn through longstnding usiness, professionl or socil reltionships. The pproch tken in this document is to provide for progressive vesting of cofounder s shres over set period (e.g. 36 months). If the co-founder leves the compny or fils to mke the required contriution to the usiness during tht period, the compny hs the option to repurchse unvested shres for the price originlly pid y the co-founder for those shres (which will usully e nil, if the shres were issued on incorportion of the compny). Silicon Vlley vesting greements most commonly pply only if co-founder leves strt up efore the end of the greed vesting period (i.e. they do not hve expected contriution provisions). However, Clifornin strt ups invrily tke dvntge of t will employment contrcts llowing them to fire stff (including founders) without cuse or compenstion, mening it is generlly not necessry to del with expected contriutions in vesting greements. I.e. if co-founder is not performing, the compny cn fire them nd cncel ny unvested stock without the need to justify cncelltion on contriution grounds. There re numer of importnt helth wrnings tht go with the use of founder vesting rrngements in New Zelnd, nd to the use of this document in prticulr: founders wishing to set up vesting rrngement must otin tx dvice on the proposed rrngement efore using this document. In some circumstnces, the implementtion of vesting rrngements in New Zelnd compnies my give rise to tx liilities founders need to think crefully out the % of ech co-founder s shres tht re suject to vesting, nd out the overll vesting period. The forced sle of shres is lunt instrument, nd could result in hrsh outcomes if you get the % nd/or vesting period wrong the right to repurchse shres for filure to mke the expected contriution, s provided in this document, is prticulrly lunt, given tht whether or not co-founder is pulling their weight cn e quite sujective. If you re uncomfortle with this concept, consider using the short form of this document on our wesite insted the vesting provisions in this document re dministered y the Bord. This my not work where there is n even numer of directors on the Bord, s mjority vote of directors will e required for ny ctions tken y the compny under this document. This is likely to e This templte document is provided for guidnce purposes only. We recommend you otin the help of qulified lwyer to complete it.

2 prticulr prolem for strt ups owned 50/50 y two co-founders, nd n mended version of this document is proly required in those circumstnces similrly, this document is not likely to work well if the co-founder entering into it owns more thn 50% of the compny or otherwise controls the Bord. The short form co-founder greement would work etter in this circumstnce, lthough mjority owner of strt up my not wish to e suject to ny form of vesting rrngement nd my wnt this to only pply to his or her minority cofounders while vesting cn e n equitle wy to mnge the comings nd goings of co-founders in the erly stges of venture, we think founders should think crefully out whether the originl vesting rrngements should continue once compny is redy to rise cpitl from professionl investors. If investors require some element of founder vesting to ensure the commitment of the co-founders to the compny, it my e pproprite to gree new vesting schedule nd n updted purchse price. using this templte The User Notes nd the sttements in the footer elow (ll mrked in red) re included to ssist in the preprtion of this document. They re for reference only you should delete ll user notes nd the sttements in the footer from the finl form of your document. The use of [squre rckets] round lck text mens tht: the requested detils need to e inserted there re different options for you to consider within cluse the whole cluse is optionl nd you need to consider whether to include it, sed on the compny s circumstnces nd the user notes. Before finlising your document, check for ll squre rckets to ensure you hve considered the relevnt option nd ensure tht ll squre rckets hve een deleted. Also, if you delete ny cluses or schedules, rememer to cross reference check the document. Founders using this document will need to ensure tht their compny s constitution expressly permits shre uy cks (see the Simmonds Stewrt templte constitution, which expressly permits shre uy cks, t the governnce section of the templtes pge of our wesite). This document is not intended to cover roder mtters relting to the mngement nd governnce of the compny, nd the reltionship etween its shreholders (e.g. the right to ppoint directors, mtters requiring specil pprovls, non-competes, etc). Those mtters cn e covered in shreholders greement (see the governnce section of the templtes pge of our wesite). This templte document is provided for guidnce purposes only. We recommend you otin the help of qulified lwyer to complete it.

3 CO-FOUNDER AGREEMENT [USER NOTE: INSERT NAME OF COMPANY] DATE PARTIES 1 [INSERT] (Co-Founder) 2 [User note: Use the following description for the compny in which shres re held.] [INSERT NAME OF COMPANY] LIMITED, compny numer [insert] (Compny) [User note: If the shres re held personlly y the co-founder, delete prty 3. If the co-founder holds the shres through nother entity (e.g. through trust or compny) or jointly with nother person, use the relevnt prty 3 wording from the options elow] 3 [User note: Use this prty 3 wording if the Co-Founder s shres re held in trust.] [INSERT], [INSERT] nd [INSERT] s trustees of [insert nme of trust] (Shreholder) 3 [User note: Use this prty 3 wording if the Co-Founder s shres re held y the Co- Founder jointly with nother person.] [INSERT], nd [INSERT] (Shreholder) 3 [User note: Use this prty 3 wording if the Co-Founder s shres re held y compny.] [INSERT NAME OF COMPANY] LIMITED, compny numer [insert] (Shreholder) BACKGROUND The Co-Founder hs ecome shreholder of the Compny with the expecttion tht he or she will mke mteril contriution to the estlishment nd development of the Compny s usiness.

4 The prties hve greed tht the Compny will hve n option to repurchse some of the Co-Founder s Shres if the Co-Founder ceses to work for the Compny or otherwise ceses to mke the expected contriution to the Compny s usiness during the term stted in Schedule 1. This Agreement sets out the terms of the Compny s repurchse option. [User note: Use the following signture lock for ech prty tht is compny.] SIGNED for nd on ehlf of [INSERT NAME OF COMPANY] LIMITED y: ) ) Signture of uthorised signtory Print full nme of uthorised signtory [User note: Use the following signture lock for ech prty tht is n individul.] SIGNED y [INSERT NAME OF INDIVIDUAL]: ) ) Signture [User note: If ny shres re held y trustees on ehlf of trust, ech trustee of tht trust will need to sign this greement. Use the following signture lock for ech prty signing s trustee of trust.] SIGNED y [INSERT NAME OF TRUSTEE] s trustee of the [INSERT NAME OF TRUST]: ) ) ) Signture of [Insert nme of trustee]

5 TERMS OF THIS AGREEMENT 1 INTERPRETATION 1.1 Definitions: In this Agreement the following words hve the following menings: Definition Agreement Bord Business Dy Co-Founder s Shres Constitution Exit Dte Expected Contriution Shreholder Purchse Price Mening this greement, including the Schedules. the ord of directors of the Compny. Mondy to Fridy, other thn ny pulic holidy within the mening of section 44 of the Holidys Act 2003 tht occurs in [insert the city where the Compny is locted]. the totl numer of shres in the Compny held y the Shreholder t the dte of this Agreement, s set out in Schedule 1. the constitution of the Compny. the dte on which the Co-Founder ceses to work for the Compny s referred to in cluse 4.2, or the dte on which the Co-Founder is given notice under cluse 3.3. the contriution tht the Co-Founder is expected to mke to the usiness of the Compny during the Term s set out in Schedule 1. the entity defined s the Shreholder in the Prties section of this Agreement, or if there is no entity defined, the Co- Founder. the price originlly pid y the Co-Founder for the numer of Shres purchsed y the Compny on the exercise of its repurchse option, s set out in Schedule 1. If the originl purchse price pid y the Co-Founder ws nil or only nominl considertion, the Purchse Price will e $1. 3

6 Term the term set out in Schedule 1. Unvested Shres the numer of Co-Founder s Shres tht re suject to the Compny s repurchse option on the dte of exercise of tht option, clculted in ccordnce with cluse 4.3 nd Schedule Interprettion: reference to: i ii iii iv v vi cluse or Schedule is to cluse in or schedule to this Agreement; person includes ody corporte, n ssocition of persons (whether corporte or not), trust, governmentl or other regultory ody, uthority or entity, in ech cse whether or not hving seprte legl personlity; including nd similr words do not imply ny limittion; sttute includes references to tht sttute s mended or replced from time to time; prty is reference to prty to this Agreement, nd includes tht prty s permitted ssigns; nd $ or dollrs re to New Zelnd currency; c the hedings in this Agreement re for convenience only nd hve no legl effect; nd the singulr includes the plurl nd vice vers. 2 CONSIDERATION AND TERM 2.1 Considertion: The Compny grees to py to ech of the Co-Founder nd the Shreholder $1 on demnd in considertion for their entry into this Agreement (including the grnt of the repurchse option to the Compny in cluse 4.2). 2.2 Term: This Agreement my e terminted y the greement in writing of ll prties to it, nd if not terminted prior will expire t the end of the Term. 4

7 3 EXPECTED CONTRIBUTION 3.1 Contriution: It is intended tht the Co-Founder will mke the expected contriutions stted in Schedule 1, including performing ny roles nd tsks specified in tht Schedule s eing the responsiility of the Co-Founder. 3.2 Nture of role: The mnner in which the Co-Founder is engged y the Compny (e.g. s n employee or contrctor) to perform the roles nd tsks required of him or her nd the remunertion pyle will e s seprtely greed etween the Bord nd the Co- Founder. 3.3 Filure to contriute: If the Bord considers tht the Co-Founder hs filed to mke the Expected Contriution in one or more mteril respects, the Compny my give notice to the Co-Founder providing detils of the shortfll in contriution. The Co-Founder my respond within five Business Dys of receipt of the notice under this cluse either ccepting the mtters stted in the notice nd proposing remedil ction tht he or she will tke to remedy those mtters, or setting out the resons why he or she disgrees with the mtters stted in the notice. 3.4 Bord decision: If the Bord: is stisfied with the remedil ction proposed y the Co-Founder in response to the Compny s notice or is stisfied sed on the resons provided y the Co-Founder tht there ws not shortfll in contriution, the Compny must withdrw the notice given under cluse 3.3; or is not stisfied with the remedil ction proposed or continues to consider tht the Co-Founder hs filed to mke the Expected Contriution in one or more mteril respects, the Compny my give the Co-Founder further notice stting tht he or she hs filed to mke the Expected Contriution nd tht the Compny intends to exercise its repurchse option under cluse Co-Founder my dispute: If the Co-Founder receives notice from the Compny under cluse 3.4, he or she my, y giving notice to the Compny within 10 Business Dys of the dte of the Compny s notice, dispute the Bord s decision nd require the mtter to e referred for determintion y n expert under cluse 5. 5

8 4 VESTING AND REPURCHASE OPTION 4.1 Vesting: The initil percentge of the Co-Founder s Shres tht re Unvested (nd re ccordingly suject to the Compny s repurchse option) is specified in Schedule 1. This percentge will reduce on monthly sis from the strt of the vesting period specified in Schedule 1 to the end of the Term, in the monthly mounts specified in tht Schedule. 4.2 Option: The Compny hs n option to repurchse the Unvested Shres for the Purchse Price if: the Co-Founder ceses to work for the Compny for ny reson, including due to the deth or disility of the Co-Founder; or the Compny gives notice to the Co-Founder in ccordnce with cluse 3.4 tht he or she hs filed to mke the Expected Contriution nd the Compny intends to exercise its repurchse option. 4.3 Exercise of option: The Compny my exercise repurchse option rising under cluse 4.2 y giving notice of exercise to the Shreholder (with copy to the Co-Founder if he or she is not the Shreholder) no lter thn 60 Business Dys fter the Exit Dte, stting the numer of shres to which it pplies (which my e some or ll of the Unvested Shres). Upon tht notice eing given, the Compny will ecome the legl nd eneficil owner of the numer of Co-Founder s Shres the suject of the notice, nd the Compny my trnsfer those shres into its own nme nd immeditely cncel them without further ction y the Shreholder. 4.4 Accelerted vesting: If: the Compny enters into listing greement with the New Zelnd Stock Exchnge, or other ntionl stock exchnge of similr or etter stnding; the Compny or shreholder (or shreholders) of the Compny enters into inding greement with third prty (or group of ssocited third prties) on rms length terms under which the third prty is to cquire (other thn y wy of suscription for new shres) 50% or more of the voting shres of the Compny, nd tht greement ecomes unconditionl; 6

9 c d the Compny enters into inding greement to dispose of ssets comprising more thn hlf the vlue of the Compny s ssets, nd the shreholders of the Compny pprove the disposition of those ssets; or the Compny resolves to mlgmte with ny other compny (whether or not it is the continuing compny), in trnsction tht is in sustnce the sme s those in nd c ove, the Compny s repurchse option in cluse 4.2 will lpse. 4.5 Adjustments: If there is ny onus issue, consolidtion or sudivision of ny shres in the Compny or ny reduction or cncelltion of shre cpitl (or ny similr reorgnistion of the cpitl of the Compny), the numer of Unvested Shres nd the Purchse Price will e djusted y the Bord to ensure tht the effect of the Compny s repurchse option remins the sme. 4.6 Agreement of entitled person: This cluse is n greement of the Shreholder s n entitled person to ny shre purchse mde y the Compny under this Agreement for the purposes of section 107(1)(c) of the Compnies Act The prties gree tht the preemptive rights nd other shre trnsfer provisions of the Constitution do not pply to ny shre purchse mde y the Compny under this Agreement. 5 EXPERT DETERMINATION If notice is given y the Co-Founder in ccordnce with cluse 3.5, the following procedure pplies: c d n independent expert will e ppointed y greement of the prties, or filing greement, y the President of the New Zelnd Lw Society (or his or her delegte) on ppliction y either prty; the role of the expert will e to decide whether or not the Co-Founder filed to mke the expected contriution to the Compny in one or more mteril respects; in reching his or her decision, the expert must hve regrd to single set of written sumissions from the Compny nd from the Co-Founder; the Compny nd the Co-Founder must ech provide the expert with ny ssistnce tht the expert my request to issue his or her opinion; 7

10 e f g the expert must not ct s meditor or ritrtor nd the Aritrtion Act 1996 does not pply; unless otherwise specified y the expert, the expert s fees must e orne eqully etween the Compny nd the Co-Founder; nd (in the sence of mnifest error) the expert s decision is finl nd inding on the prties. 5.2 Effect of decision: If the expert s decision is tht the Co-Founder filed to mke the expected contriution to the Compny in one or more mteril respects, the Compny my exercise its repurchse option s if the Co-Founder ws given notice under cluse 3.4 on the dte of the expert s determintion eing given. If the expert finds tht the Co-Founder did not fil to mke the expected contriution, the Compny s notice given under cluse 3.4 will e of no effect nd the Compny my not give nother notice under cluse 3.3 in respect of the sme mtter. 6 SHARE TRANSFERS Unless the Bord pproves otherwise y unnimous resolution, the Shreholder must not trnsfer ny Co-Founder s Shres while the Compny retins n option to purchse ny of those shres under this Agreement. 7 INDEPENDENT TRUSTEE The liility of ny independent trustee under this Agreement is not n unlimited or personl liility nd insted is limited to the funds from time to time elonging to the trust on ehlf of which he or she hs entered into this Agreement, in the proper course of the dministrtion of tht trust. In this cluse, n independent trustee is ny prty who hs signed this Agreement in his or her cpcity s the trustee of trust nd who is not eneficiry of the trust nor hs ny right to, or interest in, ny of the ssets of the trust except in his or her cpcity s trustee of tht trust. 8 RECEIPT OF DOCUMENTS BY ELECTRONIC MEANS The Shreholder notifies the Compny tht: it wishes to receive y electronic mens ll notices, sttements, reports, ccounts nd other documents to e sent to shreholders of the Compny; nd 8

11 the emil ddress to send those documents to is the emil ddress of the Shreholder listed in Schedule 2, or s otherwise notified to the Compny in writing. 9 GENERAL 9.1 Confidentility: Ech prty must keep this Agreement, its terms nd informtion it receives out the Compny nd its usiness in connection with this Agreement (Confidentil Informtion) confidentil, nd must not use or disclose tht Confidentil Informtion without the prior written consent of the other prties except to the extent tht: c d disclosure is required y lw; the relevnt informtion is lredy in the pulic domin; it is resonly required to otin professionl dvice; or it is resonly necessry in connection with ny proposed: finncing of tht prty; sle of tht prty s interest in the Compny; or sle of ll or prt of the usiness of, or the shres in, tht prty, nd the prty receiving the Confidentil Informtion hs entered into confidentility undertkings sustntilly the sme s those set out in this cluse. 9.2 Notices: All notices nd communictions given under this Agreement must e in writing nd will e delivered personlly, sent y post or sent y emil, to the ddress or emil ddress set out in Schedule 2 (or t such other ddress s notified from time to time y the prty chnging its ddress). 9.3 Time of service: Any notice given under this Agreement will e deemed to e vlidly given: in the cse of delivery, when received; in the cse of posting, on the second dy following the dte of posting; or 9

12 c if emiled, one hour fter the emil is sent unless return mil is received y the sender within tht one hour period stting tht the ddressee s emil ddress is wrong or tht the messge cnnot e delivered, provided tht ny notice received fter 5pm on Business Dy or on ny dy tht is not Business Dy will e deemed to hve een received on the next Business Dy. 9.4 Entire greement: This Agreement contins ll of the terms greed etween the prties relting to the mtters delt with in this Agreement nd supersedes nd cncels ll prior discussions nd greements covering the suject mtter of this Agreement. The prties hve not relied on ny representtion, wrrnty or greement relting to the mtters delt with in this Agreement tht is not expressly set out in this Agreement, nd no such representtion, wrrnty or greement hs ny effect from the dte of this Agreement. 9.5 Further ssurnces: The prties must ech sign ll further documents nd do ll other things s the Bord considers necessry or desirle to give effect to this Agreement. 9.6 Amendments: This Agreement my only e mended y greement of the prties in writing. 9.7 Wiver: No exercise or filure to exercise or dely in exercising ny right or remedy will constitute wiver y tht prty of tht or ny other right or remedy ville to it. 9.8 No prtnership: Nothing contined in this Agreement will e deemed or construed to constitute ny prty to e prtner, gent or representtive of ny other prty, or to crete ny trust or commercil prtnership. 9.9 No ssignment: No prty my ssign ny of its rights or oligtions under this Agreement without the prior written consent of the other prties Costs: Except s otherwise provided in this Agreement, the prties will meet their own costs relting to the negotition, preprtion nd implementtion of this Agreement Prtil invlidity: If ny provision of this Agreement ecomes invlid or unenforcele to ny extent, the reminder of this Agreement nd its ppliction will not e ffected nd will remin enforcele to the gretest extent permitted y lw Signture: This Agreement my e executed in two or more counterprts, ech of which is deemed n originl nd ll of which constitute the sme Agreement. A prty my enter 10

13 into this Agreement y signing nd sending (including y emil) counterprt copy to ech other prty Governing lw nd jurisdiction: This Agreement will e governed y New Zelnd lw, nd the prties sumit to the non-exclusive jurisdiction of the New Zelnd courts. 11

14 SCHEDULE 1 1 Term 2 Purchse Price 3 Expected Contriution [Insert the contriution the Co-Founder is expected to mke to the usiness of the Compny during the Term] 4 Co-Founder s Shres Totl numer of Co-Founder s Shres: [Insert totl numer of shres in the Compny held y the Shreholder t the dte of this Agreement] 5 Co-Founder s Shres suject to repurchse option Unvested Shres (% of Co-Founder s Shres suject to repurchse option): Strt of the vesting period: Monthly reduction in the numer of Unvested Shres: [Insert]% The vesting period strts on [the dte of this Agreement] [x% of the Co-Founder s Shres per month until the end of the Term] 12

15 [User note: The following is n exmple to illustrte how Schedule 1 could e used in prctice] SCHEDULE 1 1 Term From the dte of this Agreement to the dte tht is 36 months fter the dte of this Agreement. 2 Purchse Price Nil (shres issued on incorportion). 3 Expected Contriution [User note: This is high level description provided s n exmple only. You my wnt to e more specific in your description of the expected contriution.] c completing successful commercil relese of the compny s we pltform y [dte] undertking the role Chief Technicl Officer for the compny on full time sis ensuring tht the compny s technicl nd development ctivities re crried out in ccordnce with industry est prctice, nd ensuring tht this cn e demonstrted to other stkeholders such s potentil nd current customers nd investors 4 Co-Founder s Shres Totl numer of Co-Founder s Shres: 100 ordinry shres 5 Co-Founder s Shres suject to repurchse option Unvested Shres (% of Co-Founder s Shres suject to repurchse option): Strt of the vesting period: Monthly reduction in the numer of Unvested Shres: 75% The vesting period strts on the dte of this Agreement 2.08% of the Co-Founder s Shres per month until the end of the Term 13

16 SCHEDULE 2 Detils for Notices [INSERT NAME OF CO-FOUNDER] Contct nme Address (physicl ddress & PO Box) Emil ddress [INSERT NAME OF SHAREHOLDER] Contct nme Compny Address (physicl ddress & PO Box) Emil ddress [INSERT NAME OF COMPANY] Contct nme Compny Address (physicl ddress & PO Box) Emil ddress 14