Explanations

Legal Text

Equity Collective Agreement

Obligations of the Founder 

• Form allowed “Portfolio Company”
• Warrant of 4%
• otherwise pay 4% of acquisition value+costs

FII and the Founder hereby agree as follows:

1. Obligations of the Founder. As a participant in the Founder Institute program and unless Founder terminates his or her participation in the Founder Institute program: 

1. Founder hereby agrees to form one (1) company during the Program that uses the corporate form and basic corporate documents approved by FII as defined in Section 3.A and 3.B, and FII shall at its sole discretion choose one (1) such company to be the “Portfolio Company” under the terms of this Agreement;
2. Founder agrees to cause the Portfolio Company to (i) execute and deliver to FII a warrant, option or other equity agreement, in a form provided by FII that grants FII equity rights to four percent (4%) of the equity of the Portfolio Company for contribution to the Equity Collective, together with any required approvals, including corporate governance approvals and any applicable government approvals (“Equity Consideration”) during the Invitation Period within twenty-one (21) days of the execution of this Agreement; (ii) in the event that Founder is unable to secure Equity Consideration from the Portfolio Company in a form acceptable to FII in accordance with Section 1.B(i), Founder agrees to pay FII four percent (4%) of the Acquisition Value for contribution to the Equity Collective, and not take any action to circumvent the rights of FII to any Acquisition Value; and (iii) Founder also agrees to indemnify FII for the costs (including attorneys’ fees and expenses) of any action to enforce the payment of any amounts owed to FII under this Agreement, including the payment of the Acquisition Value, and hereby grants and conveys to FII the Collateral Security for any unpaid balances of the Acquisition Value; and

3. Founder agrees to guarantee that the Portfolio Company fulfills its obligations under this Agreement, including the obligation to deliver the Equity Consideration or Acquisition Value as defined in Section 3.D to FII under section 1.B, and indemnify FII for any and all breaches by Portfolio Company of its obligations under this Agreement.

Shared Pool

• 25% of Proceeds
• FII decides at which price and when to sell

The Shared Liquidity Pool, or Bonus Pool, works in the following way.

1. Graduates contribute 3.5% (2010) of their company in the form of Warrants or Options to the Founder Institute.

2. The Founder Institute contractually allocates the financial returns that comes in from this ownership to four groups:

2.1. 30% goes to the Founders equally, so if there are 15 Founders with 15 companies, each would receive 2%.
2.2. 30% goes to the Mentors based on the number of sessions that they lead and their rating for help by the Founders.
2.3. 25% goes to the team of local Directors that runs the chapter.
2.4. 15% goes to the Founder Institute as a long-term management fee.

2. Joining the Equity Collective. FII will, at its sole discretion, select any Founder Institute Portfolio Company formed during the Program by a Founder Institute program participant attending sessions at the same time and same location as Founder to participate in the Equity Collective (each an “Eligible Company”).

All Equity Consideration and Acquisition Value Rights granted to FII by the Eligible Companies shall be collectively referred to as the “Equity Collective.” Each Equity Collective is limited to the Eligible Companies participating in the same session and at the same location. Founder shall be eligible to participate in the Equity Collective by contributing Equity Consideration or Acquisition Value Rights from an Eligible Company to the Equity Collective, subject to the terms below:

A. Any proceeds actually received by FII resulting from the Acquisition Value Rights and the sale of the Equity Consideration in the Equity Collective or the sale of any securities underlying such Equity Consideration or Acquisition Value Rights shall be referred to as “Equity Collective Proceeds.”

B. FII will set aside twenty-five percent (25%) of all Equity Collective Proceeds received within fifteen (15) years of the start of the Program from the Equity Collective (the “Available Equity Collective Proceeds”) for the Eligible Participants (as defined below).

C. The Available Equity Collective Proceeds will be divided by the number of Eligible Companies contributing Equity Consideration or Acquisition Value Rights to the Equity Collective and the resulting quotient will be referred to as a “Equity Collective Share.”

D. All of the Founders of an Eligible Company that contributes Equity Consideration or Acquisition Value Rights to the Equity Collective (each an “Eligible Participant”) shall collectively be entitled to receive a Equity Collective Share. Such Equity Collective Share shall be shared equally among the Founders of any such Eligible Company. For instance, if two (2) Eligible Participants form one (1) Eligible Company that contributes Equity Consideration or Acquisition Value Rights to the Equity Collective, then each such Eligible Participants will be entitled to one-half (or 50%) of an Equity Collective Share.

E. FII will attempt to distribute any Available Equity Collective Proceeds received by FII to the Eligible Participants twice annually in accordance with their Equity Collective Shares. At FII’s option, Available Equity Collective Proceeds will be distributed in cash or by check, wire transfer, cancellation of indebtedness or any combination thereof. Each distribution will include a statement of expenses providing reasonable detail on the taxes, fees, expenses and other costs that were deducted from such distribution. No Eligible Participant shall have any audit rights pertaining to the Equity Collective, any Equity Collective Proceeds or any Available Equity Collective Proceeds.

F. FII will attempt to notify each Eligible Participant of a distribution using the contact information provided to FII in writing by such Eligible Participant. If FII is unable to notify an Eligible Participant using such contact information within forty-five (45) days of FII’s initial attempt, such Eligible Participant shall be terminated from the Equity Collective and all Available Equity Collective Proceeds owed to such Eligible Participant shall be allocated to FII.

G. Equity Collective Proceeds shall be net of the exercise prices of the Equity Consideration, applicable taxes and any legal, arbitration, escrow, banking, administrative and other reasonable fees, expenses and costs incurred by FII in connection with administering the Equity Collective, the exercise or sale of the Equity Consideration or Acquisition Value Rights and the sale of the securities underlying the Equity Consideration or Acquisition Value Rights.

H. The exercise or sale of any Equity Consideration or Acquisition Value Rights and/or the sale of any securities received upon exercise of Equity Consideration or from the Acquisition Value Rights shall be in FII’s sole discretion.

Phrases

1. Formed during the program time
   While before and after with similar business
2. Formed by the participant
3. Change of Control: acquisition, stock transfer, reorg
   (excluding domicile) at least 50% of voting power
   ii: sale of all or substantial part of assets
4. Acquisition Value: “Fair value value” net proceeds paid by acquirer
5. Collateral Security: Overdue –> obtain convertible or equity

Questions:

• 10% Shares to the programmer, is it a liquidity event
• Fair value value
• WordPress company, sole proprier

3. Construction of Certain Phrases; Definitions.

A. For the purposes of this Agreement, a company or other business entity shall be deemed to be formed “during the Program” if such company or other business entity was formed between the date of the first session of the Program and the date of the last session of the Program, inclusive; provided, however, that a company or other business entity formed by one (1) or more participants in the Founder Institute program before or after such time period may be deemed to be formed during the Program if Founder forms another entity for the same or substantially similar business that was developed during the Program.

B. A company or other business entity shall be deemed to be “formed” by a participant in the Founder Institute program if
(i) such entity is incorporated, registered or otherwise formed by a participant or at a participant’s request through one (1) or more intermediaries;
(ii) a participant owns, or has an agreement pursuant to which such participant may acquire beneficial ownership of, ten percent (10%) or more of the securities or other ownership interests of such entity (unless such securities or other ownership interests were acquired by such participant through a bona fide sale or transfer not intended to impair the rights of FII hereunder); or (iii) in the reasonable good faith judgment of FII, a participant has or will acquire a substantial interest in such entity, either directly or indirectly.

C. “Change of Control” means the occurrence of any of the following events:
(i) the acquisition of the Portfolio Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Portfolio Company), unless the Portfolio Company’s stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least fifty percent (50%) of the voting power of the surviving or acquiring entity (provided that the sale by the Portfolio Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder),
and (ii) a sale, assignment, exclusive license, lease or other disposition or transfer of all or substantially all of the assets of the Portfolio Company.

D. In connection with a Change of Control (including a transaction that results in the liquidation, dissolution or winding up of the Portfolio Company), “Acquisition Value” (and FII’s rights of payment therein, “Acquisition Value Rights”) means the sum of the net proceeds derived from the cash and the fair market value of any securities, other property, or any other form of consideration paid by an acquirer of the assets or business of the Portfolio Company, including any amounts distributed after the closing date of such transaction pursuant to any escrow, earn-out or other similar arrangement.

E. “Collateral Security” means a security interest in all rights, title and interest in all assets, including all intellectual property, owned by the Portfolio Company for the amounts due to FII under this Agreement, including the payment of Acquisition Value. FII shall have the right at any time there are overdue amounts under this Agreement, provided that FII has given at least ten (10) days prior notice to the Portfolio Company, to convert any overdue amounts owed to FII that have not been paid or otherwise satisfied into either
(i) equity of the Portfolio Company at the same price and subject to the same terms and conditions as the last bona fide equity financing of the Portfolio Company at the time of the conversion,
or (ii) a convertible debt instrument on the same terms and conditions as the last bona fide convertible debt financing of the Portfolio Company at the time of conversion. This Collateral Security shall be canceled upon the issuance of Equity Consideration or the payment of Acquisition Value as required under Section 1.B.

Termination from Equity Collective

nolo contendere to any felony;

Termination for both sides, or do I still have obligations?

4. Termination from Equity Collective. 

A. FII Right to Terminate. Notwithstanding anything in this Agreement to the contrary, FII reserves the right to terminate Founder’s participation in the Founder Institute program and, if applicable, the Equity Collective:

(i) for Founder’s breach of this Agreement;

(ii) for Founder’s conviction or plea of nolo contendere to any felony;

(iii) if necessary or advisable to comply with applicable law, including without limitation local or international securities laws;

(iv) for Founder’s breach of FII’s Terms of Use or Code of Conduct;

or (v) for any action or inaction by Founder that, in the good faith determination of FII, adversely affects, or otherwise reflects negatively on, FII, the Founder Institute program or the participants of the Founder Institute program.

The right of FII to terminate Founder’s participation in the Equity Collective pursuant to this Section 4.A shall survive any termination of this Agreement. In the event that FII elects to terminate Founder’s participation in the Founder Institute program and the Equity Collective pursuant to this Section 4.A, then FII will provide Founder written notice of such termination, either prior to or within a reasonable time after the termination date, which notice shall also provide for the termination of the Equity Consideration or Acquisition Value Rights and the removal of the Equity Consideration or Acquisition Value Rights from the Equity Collective.

B. Termination upon Death. Founder’s participation in the Founder Institute program and, if applicable, the Equity Collective shall automatically terminate upon Founder’s death.

C. Effect of Termination. Upon the termination of Founder’s participation in the Equity Collective, if applicable, all Available Equity Collective Proceeds owed to Founder as well as all future Available Proceeds Founder would have been eligible to receive had Founder’s participation in the Equity Collective not been terminated will be allocated to FII.

• Delaware law
• Delaware court

5. Miscellaneous. 

A. Term. The term of this Agreement will begin on the Effective Date of this Agreement and will continue until the date that is fifteen (15) years from the start of the Program or Founder’s earlier termination from the Equity Collective. Sections 1.B, 1.C, 2, 3 and 5 shall survive any termination of this Agreement.

B. Governing Law. This Agreement shall be governed by the laws of the State of Delaware, without regard to the conflicts of law provisions of any jurisdiction.

C. Dispute Resolution.

i. If a dispute arises from or relates to this Agreement, and if the dispute cannot be settled through direct discussions, FII and the Founder agree to endeavor first to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures in San Francisco, California. If the parties cannot settle the dispute by mediation, the dispute shall be adjudicated in accordance with Section 5(C)ii.

ii. FII and the Founder hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

• cannot sell part of agreement clauses
• Notices: delivered by
  Courrier, Mail, E-Mail

Question: How to prove E-Mail delivery

D. Assignability. This Agreement will be binding upon Founder’s assigns, administrators, and other legal representatives, and will be for the benefit of FII, its successors, and its assigns. There are no intended third-party beneficiaries to this Agreement, except as expressly stated. Founder may not sell, assign or delegate, including without limitation by gift, will, devise or intestate succession, any rights or obligations under this Agreement, including but not limited to any rights to Available Equity Collective Proceeds. Notwithstanding anything to the contrary herein, FII may assign this Agreement and its rights and obligations under this Agreement to any successor to all or substantially all of FII’s relevant assets, whether by merger, consolidation, reorganization, reincorporation, sale of assets or stock, or otherwise.

E. Entire Agreement. This Agreement and the Terms of Use of the Founder Institute website constitute the entire agreement and understanding between the parties with respect to the subject matter herein and supersedes all prior written and oral agreements, discussions, or representations between the parties. To the extent any terms set forth in any exhibit or schedule conflict with the terms set forth in this Agreement, the terms of this Agreement shall control unless otherwise expressly agreed by the parties in such exhibit or schedule.

F. Severability. If a court or other body of competent jurisdiction finds, or the parties mutually believe, any provision of this Agreement, or portion thereof, to be invalid or unenforceable, such provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

G. Modification, Waiver. Subject to Section 5.J, no modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in a writing signed by the parties. Waiver by FII of a breach of any provision of this Agreement will not operate as a waiver of any other or subsequent breach.

H. Notices.

Each such notice or other communication required or permitted under this Agreement shall be treated as effective or having been given (i) if delivered by hand messenger or courier service, when delivered; (ii) if sent by mail, at the earlier of its receipt or seventy-two (72) hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid; or (iii) if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address.

I. Reservation of Rights.FII reserves the right to change the terms and conditions of the Equity Collective at any time and from time to time provided that such change shall be of general applicability to all participants enrolled in the Founder Institute program during the Program in the same location as Founder.

J. Conflict.In case of any conflict between this Agreement and FII’s Terms of Use or Privacy Policy, the terms of this Agreement shall govern.

K. No Impairment. Founder shall not, through any voluntary action or inaction, avoid or seek to avoid the observance or performance of any of the terms of this Agreement required of Founder, but shall at all times in good faith assist in carrying out of all the provisions hereof and taking all action as may be necessary or appropriate to protect FII rights under this Agreement against impairment.

I am ready to sign to the FII Equity Collective Agreement.
However, one clause remains far too broad and requires further clarifications to avoid any future litigation.

There I am suggesting an annex to the agreement

Clause of Concern:

3 A) Focus on “Before”

“or more participants in the Founder Institute program before or after such time period may be deemed to be formed during the Program if Founder forms another entity for the same or substantially similar business that was developed during the Program.”

Background:

Between 2018 and March 2021 (before the start of the Founders program),

My team has developed WordPress Plugins which are valued of around 100K CHF on the balance sheet of my sole proprietorship company.
This company has not obtained a profit until now. We had the aim to converts parts of it into a non-profit-organization (e.g. using the sites SNBCHF.COM and economicblogs.org).

With the help of Founders Institute, I am aiming to enter the SEO market (Search Engine Optimization), given that we have realized a potential big opportunity.
For this I am building an LLC (Swiss AG) with the name “Innobia“.

Innobia will use many of these WordPress Plugins, that – as stated – were built before the start of the FI Program.

Annex to the Equity Collective Agreement :
In the annex it shall be clarified

A) which parts of the existing software – if any –  are governed by the FII Equity Collective Agreement and/or are transferred into Innobia as assets in kind.
B) or if the sole proprietorship company remains owner of the entire existing software and is a software provider to Innobia. In this case Innobia pays a monthly license fee to my
sole proprietorship company.

How to proceed:
Mentors, could you please suggest how to proceed.
Should I first sign the Equity Collective Agreement and we elaborate the annex later? Or vice versa?

Regards George