At Legal Nodes, we help Web3 founders to legally structure fundraising effectively via a single legal platform. 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. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. As with any legal agreement, the token warrant comprises a number of terms and conditions. But if they do, the company must mint new tokens equal to the number of tokens in the exercised warrant. (please print or type complete name of entity) | How do you know if your tokenomics is ready? The key differences between the two are that the token side letter gives founders more flexibility in terms of whether they will issue tokens or not and what the token price would be. "_ Affiliate _" means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person, where "control" is defined as directly or indirectly possessing the power to direct or cause the direction of the management and policies of the Affiliate, whether through ownership of voting securities, by contract or otherwise. Developed Nations. In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. We'll be glad to chat with you. As it is a separate entity, the Token SPV can handle these processes, shielding the DevLab from any involvement in the token distribution process. Any attorney-client relations are between clients and legal providers only. Because SAFTs are considered Investors mint warrant tokens when they deposit capital into the aggregate pool. These two documents are used in pre-seed Web3 fundraising and share a number of similarities. 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. February 28 business combination with Jet Token Inc. (Jet), a Delaware based company. Lets look into the key terms of these agreements and highlight the main points for negotiations. The warrant, requested by state police criminal investigator Trooper Justin Bedford of the Schuylkill Haven station, outlined the events that occurred at 222 Second St. For example, in the case of Maple, below, a seed investor who owns 10% of Maples equity would receive 2.6% of its tokens (10% x 26%). As of the Issue Date, the Holder shall deliver to the Company payment in cash equal to the Purchase Price. The earnout warrants have a strike price of $15 and a term of 10 years. WebWhat is a token side letter or warrant (with a SAFE)? "_ Company Intellectual Property _" means all patents, patent applications, registered and unregistered trademarks, trademark applications, registered and unregistered service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, and in any and all such cases that are owned by the Company. Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. Thank you! |, Title:(please print or type full title) | The token side letter represents the option to receive future tokens, alongside the equity, of these early-stage crypto companies. | Rankings and News. Oops! 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. FTX TOKEN. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. 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. 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. 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. Additionally, if the DevLab also plans to issue rights to tokens to its investors, this is best done via a token warrant (and not Token Side Letter) because of the following 3 reasons:. A usable or near finalized (i.e., not just a draft) White Paper with detailed tokenomics, a ready-made Token SPV, on whose behalf the SAFT will be signed, and which, based on the results of the conversion of the SAFT, will issue tokens to the investor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. It held $11.5 million on crypto exchange FTX and has written that down to zero, but expects to receive some sort of compensation in the future. IN WITNESS WHEREOF, the undersigned Holder has executed and delivered the Warrant and this Exercise Notice as of the date set forth below. Disclaimer: the information in this guide is provided for informational purposes only. Issued on ____________, 2022 (the " Issue Date"). 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. Your existing traction, team, strategy, industry (DeFi, DAO tooling, NFT, P2E gaming) may all result in different valuations, and comparable companies in your specific industry can be used as a part of your negotiation. * It may be hard to determine the future tokenomics or token utility model as an early-stage company without product-market fit or a large community of users. 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. Decide which token pro-rata right method you want to use by comparing outcomes with your token allocation and the three types of token pro-rata right methods. Web[Meta] Sticky Comment. Notice of Expiration. 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.. The second important difference between the two documents is that the token side letter does not require any additional details of payments for tokens: the consideration is already included in the price of the convertible equity agreement. This agreement sets out the Given the shifting nature of regulation in this space, we recommend consulting with your legal counsel before moving forward with any type of token-based equity.. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. 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). 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. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. 1. 5.1. Instead, it only confirms the right of investors to purchase tokens with a discount or at a predetermined price. In summary, the choice of an investment document for Web3 projects is mostly influenced by the readiness of the tokenomic model. Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. The fully diluted supply and conversion rate method gives investors a fixed token supply guarantee based on their equity ownership, while the company allocation method is subject to future token allocation decisions by the company. Let us look closely at each of the routes. 25% of the total number of the Tokens of Holder shall become unlocked on the 12-month anniversary of the Token Launch (the " Cliff _"); When we say tokens, were referring broadly to blockchain-based digital assets. Here's an easy flow to use to figure out which option may work best for your project.. A SAFT broadly follows the same principles as a SAFE (Simple Agreement for Future Equity) or, our SAFE equivalent, a Depending on the business and how it leverages the tokens into the business model, investors will value the equity and tokens accordingly. He represents technology companies and investors in all types of corporate transactions, including venture capital financings, public offerings, and mergers and acquisitions, and has a practice of representing dozens of companies and investors Method of Exercise. Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). B = the fair market value of one Token, determined at the time of such net exercise as set forth in Section 2.5(b). because its native tokens, GRAMS, were found to violate federal securities laws. VLOs analyze all the legal tasks needed to structure the fundraising, prepare cost estimates and then select the best legal providers from the Legal Nodes Network for each task. 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. As for a legal structure, in most cases, founders will have only registered a product development company (DevLab), most likely in one of the IT/IP-friendly countries currently available, like the US state of Delaware, the UK, UAE, Singapore, Estonia and other countries. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. *Consult with your legal counsel on whether to use a token side letter or token warrant. WebCheck out the article below to learn 5 Things to Know About Token Warrants. Oops! "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. Get early access to token side letters, token vesting, and cap table management solutions at LiquiFi. In order to determine the best approach of how to structure it, it is necessary to assess the readiness of the projects tokenomics.