token warrant agreement
WebManage your legal agreements (SAFTs, token warrants, token grants) and communicate the value of your future token. (please print or type complete name of entity) | "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. This checklist provides key information for those outside the legal field but we, of course, strongly advise engaging a lawyer before entering into any binding agreements. ContraFect has agreed to issue 128,000 shares of common stock and pre-funded warrants to purchase 2,372,000 shares of common stock. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. This is not legal advice. One increasingly popular way to do this is via the issuance of token warrants.. If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. Therefore, in some cases, the token side letter may look more appealing to investors compared to the token warrant, as it will not involve any additional payments to receive tokens later. Watch this clip from our "Fundraising for Web3 Projects" talk that covers token sale agreements and their use in more detail: If the Web3 founders of the project plan to decentralize its ownership and governance by launching a DAO in the future, it will be important for the investor to understand exactly how the members of the DAO will be selected, and how exactly the governance rights for these DAO members will be structured, as the investor is likely to apply to participate in the DAO themselves. Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. A growing number of web3 startups are turning toward mechanisms that allow them to issue equity to investors in the form of their native tokens. WebToken based compensation: $ 570: $ 202: Warrant agreement period, description: INX token warrants are subject to lock-up agreements for periods of 6 to 24 months following the date the Offering was declared effective by the SEC in August 2020. However, when the token warrant is executed during the initial token sale, the investors will be making a transaction with the Token SPV directly, at the rate of the previously determined price or discount. Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Until a token launch, there is always some non-zero chance that tokens may never be issued. Token warrants are an increasingly popular fundraising option among web3 startups, but there are a few peculiarities to how they work. "_ Insider Reserved Percentage _" means the percentage of the Total Network Tokens, in the aggregate, reserved for issuance to Insiders in connection with the applicable Token Launch. The most important of them are as follows: As you can see from this list of key document details, the terms of the token purchase right sit at the very core of the token warrant. "Company" shall include, in addition to the Company identified in the opening paragraph of this Warrant, any corporation or other entity that succeeds to the Company's obligations under this Warrant, whether by permitted assignment, by merger or consolidation or otherwise. Jonathan Chan is a partner in the corporate practice at Wilson Sonsini Goodrich & Rosati. THIS WARRANT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO A QUALIFIED OFFERING STATEMENT PURSUANT TO REGULATION A OF THE SECURITIES ACT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. Net Exercise Election. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. This article covers all there is to know about token warrants and includes a free token warrant template created by the team at Legal Nodes. At Legal Nodes, we help Web3 founders to legally structure fundraising effectively via a single legal platform. Schedule a call and we'll discuss your equity and see how we can help. All Rights Reserved. Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. According to the test, an investment contract exists if there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. Rarely used anymore. "_ Preferred Stock _" means any series or class of preferred stock that is or may in the future be defined in the Certificate. The number of tokens issued to the holder upon exercise of the warrant is typically commensurate with the holders investment stake in the company, though it may also be affected by the total allocation of tokens for investors. Thus, like a SAFT, or Simple Agreement for Future Tokens, a token-based award in any event may be deemed a security, and its issuance should be compliant with In these cases, we can distinguish two general approaches. The proceeds of the Note may be drawn in a single instance within five (5) business days after the date thereof. In addition, any such restrictive provisions shall provide that any discretionary waiver or termination of the restrictions of such agreements that are approved by the Company's Board of Directors with respect to any Insider shall apply to Holder, pro rata, based on the number of Tokens held by such parties. We'll be glad to chat with you. The material terms of the TSA are almost the same as those of the SAFT, except that the TSA lacks a description of the conversion event and indicates a clear date of transfer of tokens to investors. The token side letter represents the option to receive future tokens, alongside the equity, of these early-stage crypto companies. Legal Nodes does not assume responsibility for the contents of any templates or documents in any form that are provided on the Legal Nodes website. WebA SAFT is similar to a simple token warrant agreement for future equity (SAFE), allowing early-stage investors to convert their cash investment into equity later. This Warrant shall be deemed to have been exercised with respect to Holder immediately prior to the close of business on the date that it is exercised pursuant to the terms of Section 2 above by Holder, and the Person entitled to receive the Tokens issuable upon such exercise shall be treated for all purposes as the holder of record of such Tokens as of the close of business on such date. the amount of investor allocation of tokens, the price of tokens at the time of transfer to the investor, conversion event (the moment when the SAFT is converted into tokens for the investor). This is not the same for token warrants, where their value is already included in the value of the SAFE, to which the former is signed as an annex. WebAll Ember Tokens issued by the Company upon the proper exercise of an Ember Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and non Similar supply-demand issues may arise if a bunch of separate warrants are exercised at the same time. Both Telegram and Kik were found to fail the Howey Test which determines whether or not a transaction qualifies as an investment contract and would therefore be deemed a security and subject to disclosure and registration requirements under the Securities Act of 1933 and Securities Exchange Act of 1934. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. After that, they manage the work, handling all communication with the service providers, quality-checking deliverables and ensuring that the fundraising and token launch are undertaken in a compliant way. It is the Token SPV that will be responsible for the sale of tokens and will have also received regulatory approvals to organise the distribution. You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. If youre the founder of a web3 startup looking to attract venture capital investors, issuing token warrants could help you translate your protocol or dApps tokens into equity that fuels your startups growth. The token purchase right is the right to buy tokens in the future. In particular, both the token warrant and the token side letter: Despite being related, appearing at the same point of the Web3 fundraising process, and having similar sounding names, the token warrant and the token side letter are sisters, not twins. As it is a separate entity, the Token SPV can handle these processes, shielding the DevLab from any involvement in the token distribution process. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. These Warrants will be under lockup for 181 days starting from 1-SEP-2022 to | Certain Warrants of bioAffinity Technologies, Inc. are subject to a Lock-Up Agreement Ending on 1-MAR-2023. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. In case you need help with customizing the template, request a demo of our platform or send us a message in chat.. In terms of issuing tokens, the way they function is fundamentally different. Webtoken undertaking vow warrant warranty word word of honor guarantees nounpledge, promise agreements assurances attestations bails bargains bonds certainties certificates certifications charters collaterals contracts covenants These two documents are used in pre-seed Web3 fundraising and share a number of similarities. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. Lets look into the key terms of these agreements and highlight the main points for negotiations. "_ Parent _" shall mean any entity (other than the Company) in an unbroken chain of entities ending with the Company, if each of the entities other than the Company owns securities possessing 50.1% or more of the total combined voting power of all classes of securities in one of the other entities in such chain. This company is usually registered in a jurisdiction where the legislation permits token issuance and provides defined rules for taxation of token-sale transactions. And, as with stock warrants, token warrants are generally issued to investors, banks, and third-party partners (rather than to employees, consultants, and other service providers).. Oftentimes, a projects tokenomics model develops over time, and it can be difficult to predict the future value of an individual token so early in a projects life. On the terms and conditions set forth in the Warrant, the undersigned Holder hereby elects to purchase its Portion of the Total Network Tokens (the "Warrant Tokens"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the Warrant Exercise Price in full. One way a company can avoid this out-of-control minting of new tokens is by setting aside a certain percentage of its total token allocation for investors. SAFTE (Simple Agreement for Future Tokens or Equity) similar to SAFT, but gives investors equity with the optionality of converting to tokens. A Token company (also referred to as a Token SPV) is a company within a project's legal wrapper that is responsible for the initial token release and distribution. Given that various types of tokens (utility, security, payment, etc.) require an accommodating regulatory climate for their issuance and distribution, a DevLab may not always be the most suitable vehicle for token issuance. (In our template, available to download below, we chose to go with the pro-rata formula based on contributors allocation, meaning that the base for the calculation is not the entire token pool, but the part that is used for distribution to the core contributors. This, in turn, can be reflected in the token sale agreement in the process of structuring the investment round or specified in the DAO Constitution, which is similar to a shareholders agreement in traditional Web2 investing. Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). Mentioning any of the assets in this article is not an endorsement to purchase them. Payment for Holder's Portion of Tokens upon each exercise may be made by (a) a check payable to the Company's order, (b) wire transfer of funds to the Company, (c) cancellation of indebtedness of the Company to Holder, (d) by net exercise as provided in Section 2.5 hereof, (e) any other method of payment approved by the Company, or (f) any combination of the foregoing. WebThe NVCA Model Legal Documents are the industry-embraced model documents that can be used in venture capital financings. IN WITNESS WHEREOF, the undersigned Holder has executed and delivered the Warrant and this Exercise Notice as of the date set forth below. It is, however, rare for the tokenomics to be ready at such an early stage. This agreement sets out the Rankings and News. To read more about the differences between the token warrant and token side letter, and download a free token side letter template, visit this page.. This, in turn, helps the DevLab (which may be registered in the US as an American company) to avoid any involvement with the process of selling and distributing tokens. Using the right legal instrument is critical and by using a token warrant and a SAFE, founders can reduce the chances of falling into a regulatory pitfall. The terms and additional documents you require may depend on whether you plan to launch a DAO or not. Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Oxbridge Announces Filing of SPAC Business Combination Agreement. This is possible thanks to the token warrant assignment by the DevLab to the Token SPV at the time it is created or before the token generation event. "Token(s)" means the digital assets created and issued by the Company, or any Parent, Subsidiary, Affiliate, foundation formed for the purposes of issuing a Token native to a Protocol or Founder (provided that, with respect to a Founder, no such asset shall constitute Token(s) for purposes hereof unless such asset is (i) based on the Protocol and (ii) created prior to the three month anniversary of the termination of services of such Founder to the Company or another Token Issuer) of the Company or their respective successors or assigns (collectively, "_ Token Issuers _"), that are developed using Company Intellectual Property; provided, that Tokens shall not include any digital assets that may be implemented by the holders of the Tokens by governance proposal and votes, so long as any such tokens (x) shall be issued in accordance with the governance terms of the Protocol or any Token Issuer's network or Protocol and not in any Token Issuer's discretion and (y) that Holder shall be reasonably able to participate in any staking, rewards or inflationary or dilutive controls introduced through any such proposal to the same extent as any other similarly situated holder of the Tokens. a Token SPV). *Consult with your legal counsel on whether to use a token side letter or token warrant. Something went wrong while submitting the form. The SAFT and SAFTE (simple agreement for future tokens or equity) have largely fallen out of favor in the United States due to legal risk and violations of securities laws. If you want your Web3 fundraising to go smoothly and just the way you envision it, Legal Nodes would happily help you customise the template to address your specific fundraising needs.. The number of tokens that they will be able to buy with the discounted price is then calculated pro-rata to the equity ownership of the investor. Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. Many web3 companies develop their own crypto tokens as part of a blockchain-based project, and these companies can theoretically mint as many tokens as they want. In some cases, token warrants may even be used in conjunction with SAFEs or other more traditional equity mechanisms. As a condition to each exercise of this Warrant, Holder shall execute a copy of the exercise notice attached hereto as Exhibit 1, confirming and acknowledging that the representations and warranties set forth in Section 6 of this Warrant as they apply to Holder are true and complete as of the date of exercise. "_ Person _" means any individual, corporation, partnership, trust, limited liability company, association or other entity. Token warrants bear some key similarities to traditional stock warrants. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) While not the same, properly drafted token side letters and warrants are intended to achieve the same outcome and are used interchangeably for this article. So the equity and the probability of not launching a token has to be valued accordingly and will be reflected in the token side letter terms. To better understand token warrants, lets review them through the lenses of tokenomics and how they relate to another token equity mechanism called a SAFT (Simple Agreement for Future Tokens). Thank you! That being said, it is not the only way to structure the conversion formula, we chose this method as it is an industry practice we think will be most helpful to users of the document, as per our explanation below), So, if your tokenomics is finalised, meaning, the price of the token at the time of its issue and the hard cap is already determined, you will be ready to specify in the token warrant details about the number of tokens available to the investors and their specific price. As a founder, you should fundraise when you have the most leverage with measurable progress and traction for your business. Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Oops! For example, say 20% of all tokens are allocated to investors. WebToken warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens . Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. An equity raise with a token warrant structure means startups can focus on developing their product-market fit in the short term, parking designing a token economy until later, Outlier's Burke said. The structure of a SAFT is and signed agreements in their personal portals. |. This is why its generally a smart idea for web3 startups to think twice before offering a massive token warrant to an early-stage investor.. Make sure to be clear with the investors on the value of the equity and the tokens together so that you dont end up with the wrong token side letter terms, or delay closing the deal because of misalignment on valuations. Remember! "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. Also, the investor can claim the Token SPV shares to consolidate their control rights. You should not construe any such information as legal, tax, investment, trading, financial, or other advice., If youre considering fundraising options for your Web3 projects, youll most likely find yourself in one of the three following, rather common, scenarios:, Scenario 1: Youre at the beginning of developing your project and havent yet registered a token company (i.e. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. (To be completed and signed only upon each exercise of the Warrant). Based on these details, investors will arrive at a certain valuation for the equity and the tokens together. in Europe or elsewhere), then they have more flexibility in choosing between the token side letter and the token warrant to sign along with SAFE.. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. But in order for the tokens to maintain a relatively healthy and stable value, their developers must pay attention to tokenomics principles such as supply-and-demand and providing ongoing incentives to holders. As a part of this process, investors are also pricing the equity valuation in a scenario where there is no token launch to make sure that their investment is protected. If an early investor exercises a token warrant that results in the minting of a huge number of new tokens (and their subsequent flooding of the marketplace), the immediate supply may outstrip the demand and devalue the token. This Warrant may be exercised any number of times by Holder, prior to the Expiration Date, to provide Holder the opportunity to purchase up to Holder's Portion at each applicable Token Launch, less any Tokens purchased by Holder pursuant to any prior exercise of this Warrant with respect to such Tokens. Automatic vesting ensures that tokens are seamlessly moved to connected wallet addresses upon vesting, and token holders can access advanced views that help them track the projected future value of their tokens. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms WebThis Token Purchase Agreement (this Agreement ) contains the terms and conditions that govern your purchase of the INX Tokens, an ERC20 blockchain asset that is programmed The use of the covered warrant structure in the digitized security token era of 2019 introduces a critical structural enhancement to the industry overall and we are Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. The involvement of the DevLab in token distribution often occurs after the Token SPV issues tokens, and reserves a part of the tokens for key contributors (founders, advisors, team) and investors, subsequently transferring this pool to the DevLab. Item 1.01 Entry into a Material Definitive Agreement. Nestor is a Co-founder & Head of Web3 Legal at Legal Nodes. Learn more at our website at liquifi.finance. Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) In addition, Legal Nodes does not assume responsibility for the consequence of using any version of the templates found on our website. Are you sure you want to create this branch? This could influence which token pro-rata right method you negotiate for. WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE The concept of the token purchase right in a token warrant can be roughly reduced into its three main features: Its important to note that these three circumstances apply to the signing of the token side letter too. As the token warrant is signed together with the SAFE, the prices set out in the SAFE includes the value of the token warrant, which is also called a token purchase right. WebUnless otherwise stated herein, this Token Sale Agreement governs only your purchase of Tokens. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. In cases where the investor expects to get not only the future tokens, but also the shares of the company, founders should consider using a simple agreement for future tokens and equity (SAFTE) instead of a SAFT. "_ Fully Diluted Percentage _" means, with respect to a Holder, the quotient obtained by dividing (a) the total number of Common Stock then issuable (directly or indirectly) upon the conversion of Preferred Stock of the Company, as if converted, by (b) the total Common Stock of the Company then outstanding (assuming (i) full conversion of all Preferred Stock then outstanding, and treating for this purpose all Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted and (ii) without duplication, issuance of all shares reserved but unissued under the Company's equity incentive plan(s)). SAFTs do not The latter can be seen as riskier due to the unknown token allocations that have yet to be made. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. And if you plan to give a small amount of tokens to the company, it may be better to use the company allocation methodology (so that investors get fewer tokens for the same amount of capital). | Date: | Date: | I co-authored this article with Joseph Perkins, Mark Janoff, and Robert Moore. and the type of signatory company youll be using to sign your fundraising documents, youll have a number of different fundraising documents you can choose from. For your tokens, have some baseline or early assumption of future token allocations by looking at comparable benchmarks from sources like Cooopahtroopas and Lauren Stephanians tokenomics analysis, Messaris company profile pages, and other recent token launches (Goldfinch, Braintrust, dYdX). Its no longer enough to understand the ins and outs of stock options, stock warrants, and other mechanisms of traditional equity. The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. If Web3 founders plan to control the emission of tokens and the process of token distribution in a centralized way, and do not plan to launch a DAO to decentralize the governance of their project, then at later stages of investment, investors may start requesting the control rights over the Token SPV. Disclosure: I am not a lawyer, this is not legal advice, and you should seek out independent legal counsel for your unique circumstances. WebA token warrant agreement, commonly referred to as simply a token warrant and also known as a token purchase right, is a document often used by Web3 projects to attract