List of questions and comments after I read through all of the incorporation documents we were asked to sign as part of going through the accelerator.
read moreEquity Incentive Plan. * How do we add people to the board, remove people from the board. Is the Upstart person always going to be on the board? * Board evaluating whether a person deserves to keep their shares, what happens when one person is included from the discussion and there are an even number of remaining board members? How do you reach a Quorum when there are two people making a vote, what happens in the case of a tie? * How can a founder sell back their stocks? How can we transfer stock between ourselves? * If a founder leaves and their shares are unvested, what happens to the shares? Can we transfer unvested stocks to each other, and how? * We have questions about continuous service. If one of us wants to take a part-time or full-time job to cover our living expenses to support the other’s work on Coursicle, how do make sure that their stocks are safe, etc? In this situation, if one person on the board thinks this violates continuous service and the other person on the board doesn’t, does * It’s unclear to us how many people need to make a decision Founder Restricted Common Stock. * In 5.3, section (b), the purchaser shall acquire a vested interest in and… does this mean we are only able to receive 50% of the then unvested shares? * 2. Look through common stock purchase agreement again. * 3. Should skim "Investors' Rights Agreement” * 1. Watch the video. Focus on the vesting talk. * Point us to where these questions are answered in the documents. * Should ask about reducing taxes, don’t want to have to pay double taxes. Get around employer’s taxes by paying founder’s as 1099 contractors? Notes from Upstart Video: * Written consent of incorporator: appointment of board of directors, an attorney from baker donelson will serve as the incorporator. * Written consent of the stockholders: stockholders will approve the equity incentive plan. * Bylaws: procedure for meeting of stockholders, directors, and powers that directors and officers have. * Written consent of board of directors: the board approves the actions by the incorporator, as well as the certificate of incorporation, the bylaws, and will appoint officers, adopt fiscal year, approve sale of common stock, approve SAFE agreements, and approve expansion of the board with the investor representative, and approve the equity incentive plan. * Employee contract agreement: essentially assigns all IP to the company, follow company policies, confidentiality, not solicit customers or solicit employees or interfere after leaving, also include Exhibit A, where the person signing can choose whether they are subject to certain things like confidentiality/non solicit. Founders have to sign this document, but also employees when they come onto the company. * Founder restrictive common stock purchase agreement: how founders actually get their stock. There are transfer restrictions on the stock, due to possibly federal restrictions [I think???]. Also addresses vesting restrictions. "The company has right to repurchase the founder’s shares at the original purchase price subject to a vesting schedule.” [this doesn’t mean they could purchase unvested stock even if the founder is still an employee, right?] 50% of the shares vest during sale, merger, and any remaining seem to vest on the same schedule, but there’s also a new clause that says the remaining 50% vest “if within the two year period following the corporate transaction, the employee is terminated without cause or the employee terminates their employment for good reason" 83(b) election, essentially gets around a tax issue where you’d be taxed a lot sometime later. Also contains “assignment separate from certificate” which allows the company “if it exercises its repurchase right to transfer the shares without the purchaser’s signature at that time” * Equity incentive plan: framework and rules for giving stock awards to advisors, contractors, etc. Board of directors by default administers this plan, determines the market value of the shares, and vesting restrictions. The board can setup a plan committee and awards committee if desired. Can give out shares as “options” or “restricted stock”, options allow the holder to purchase shares of stock for a certain price within a certain period of time, while restricted stock is stock granted but with restrictions, such as vesting. Also provides the company with a right of refusal if the participant decides they want to transfer their shares, and requires participant participate in voting agreement or stockholder agreement if the company asks them to do so [not sure what this means???]. * Written consent of the stockholders: approves the equity incentive plan and approves the 50k of stock reserves. * SAFE: investment vehicle for accelerators, they won’t receive stock now, but will receive right to receive stock in connection with future funding event. Like convertible note, but no stated term or maturity date, no interest. Some safe convert to fixed percentage of company, and some will convert based on price per share paid by the investors paid in the future funding round. These SAFEs contain valuation cap, so the price per share that the SAFE converts is the lesser of the price paid per share of the investor and the amount calculated by the valuation cap. * Investor rights agreement: grants rights to investor, most notably the right to appoint a director to the board of directors. Also entitles investors to basic financial information about company [I think???] * Signatory authorization form: authorizes Form D securities filing on our behalf in connection with the investment [not sure what this means???]. Joe’s Comments/Questions from reviewing each document: Equity Incentive Plan. * Don’t understand this sentence "The Shares to be delivered under the Plan may be authorized but unissued Shares or Shares reacquired by the Company in any manner.” * Note that shares that are unvested will go back to the option pool it seems. * Board seems to have sole discretion over shares being awarded. * A quorum can make a decision on a lot of this stuff, and a quorum is defined as a majority but no less than two people. * " except that no such member shall act upon an Award to such member”, so wouldn’t the possibility of a tie be very likely in the case where we decide on a single founders’ shares? * What really is the point of having both a Plan Committee and an Award Committee? It seems like each of their rules are the same, they just act on behalf of their superior committee. * Plan committee can “cause cancellation of any or all outstanding Options”, but it can’t negatively affect the Participant/they have to consent. * Determination of continuous service "shall be binding even if there is not a quorum of the Board due solely to the exclusion of such Participant;” * Stopped at 5.2. * Page 18 and beyond: * When certain stock splitting occurs, everyone’s stocks are scaled proportionately. * No fractions of shares are allowed. * Awards can be changed so long as the participant agrees. * Transferred shares still have to vest * Getting fired within 180 days gets your shares vested after change of control * Can give us cash instead of shares in certain cases upon acceleration event, those cases being 11.1 and 11.2, which are when the plan is terminated upon acceleration event, and when the person is not offered a good job at the new company, or is fired within 180 days. * Has the right to not break law by issuing/paying out shares * Securities laws: essentially when you trade publicly I suppose or something, then you have to have audits, and give all information to investors. * Essentially you have to tell the company when you want to sell your shares to someone * The company has the right to purchase those shares from you instead of letting you sell them to the other person Investors’ Rights Agreements. * Investors have the right to see pretty much all of our financials. * 2, 2.1 “during the term of this agreement”. What is the term? Seems to be when IPOd, when bought, * 3.1 “provisions may only be amended with written consent of the holders of a majority of the SAFEs”, which makes sense because we should require their consent for anything. Cap Table. * What exactly is a “repurchase price”? It seems like it’s the price that the company can buy back the shares that people own. * Is the company that’s just providing services actually going to receive shares? Yes, I believe they are. Looks like the total giving up is 6.7%. Safe Agreements. * What is the “safe price”? 1 (a) * What is Pro Rata Rights? 1 (a)(ii) * They get their money back if there is a liquidity event. * If dissolved, they can get all assets if can’t pay back or something. * We say we own all rights to things related to our company * Says the investor is accredited * Seems like these “securities” in our company aren’t able to be sold unless they’re approved under the “securities act”, and this, obviously is not. Interesting. * Anything can be changed by written consent of both parties * They have no right to vote on the board, or receive dividends, until shares have been issued upon the terms? Bylaws. * 3.8, are we considered joint owners of stock if married, live together, etc? * Essentially, stockholders can have the company act if they have a majority without actually holding a meeting. * Board should appoint a “inspector” who will take notes of the meeting? * 4.1, board of directors are pretty much in charge of everything unless specified by statute or Certificate of Incorporation * Majority stock holders’ vote it seems is necessary to remove a board of director? * 4.8 essentially talks about what constitutes a quorum, and what to do when members are disqualified. Could be relevant? * Employees can get paid for attending the board meetings * Can create committees that do certain stuff, but they aren’t allowed to do everything. * The board of directors appoints the CEO, CFO, etc. * CEO is top dog, but reports to the board. Everyone else, including other officers, report to CEO. CEO executes board requests. * President does what CEO does if CEO isn’t present. * CFO duties * If you sign stuff as an officer and then stop being an officer before it is delivered to a person, the signed stuff still counts * Rules about dividends. When do they start having to be paid? * Rules about how people are notified of stuff, like meetings. * Directors can do anything to the bylaws Certificate of Incorporation. * Can issue 5M shares of stock total * A bunch of liability/insurance stuff Employee Contractor Agreement. * Surrender everything you’ve made to the company as their property that’s related to their services. Exceptions are if done on own time, on personal laptop, that does not directly relate to company functions, etc. * Will not disclose private information. * Will not solicit employees, customers, etc for 1 year after stopping employment. * Currently don’t have any agreements of confidentiality, etc, that we’re being held under * Will help company obtain copyright if desired * Disclose everything you’ve worked on * Company can sue you hard if you break agreement Founder Restrictive Stock. * What is this “repurchase right”? When can the company repurchase a founder’s stock? Asked them if it was the case that what that said meant that they can only repurchase if founders left the company, and it was just to prevent stock from being in limbo and they said yes. * Restrictions on selling stock, like 6 months after purchasing or something. * Seems like unvested shares can’t be sold or transferred. How could we transfer stock between each other, then? They essentially said that we would have to cross the “sell/transfer shares between each other” when we got there. Signatory Authorization. * Just says that they can file the incorporation documents on our behalf. Written Consent of The Stockholders. * Fine, just saying that they have our consent for the equity incentive plan and reservation of shares. Written Consent of The Board of Directors. * Just saying that we give consent for the other documents and that they are ratifying. * Says officers can open a bank account, apply for EIN. * Approves stock to be given to founders * The officers have the power to make agreements that the company can approve? * Typo in SAFEs issued to investors, no space after “directed to issue”. * ERIC MATHEWS IS THE PERSON BEING PUT ON OUR BOARD Written Consent and Resignation of the Incorporator. * Essentially just says this guy can do it in place of us doing the incorporation documents. To Do: * Do text-compare on the SAFEs. General question: * So in general, do the board members need to vote in majority, or do the stocks they represent need to be a majority? * Could we save money by defining an unusual fiscal year, because the necessary attorneys/accountants would be in lower demand when things are due? * As the controlling party of the board, is there anything in these documents that we wouldn’t be able to change (other than, of course, the investor’s terms)?