DRAFT STACK NOTE AGREEMENT (Structured Terms for Aligned Capital Kicker)
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Effective Date: [Insert Date]
This STACK Note Agreement (“Agreement”) is entered into by and between:
[FUND ENTITY] , acting through its General Partner, [Fund GP Entity] (“Investor”),
and
[Startup Name], a [Jurisdiction] corporation with its principal place of business at [Startup Address] (“Company”).
1. Purpose
This Agreement sets forth the terms under which the Investor provides capital to the Company in the form of a STACK Note—a structured, convertible, non-interest-bearing security that may convert into equity upon certain triggering events. This instrument is designed to align founder and investor incentives while complementing non-dilutive grant funding from the Moonbase Foundation.
2. Investment Amount
Investor shall provide the Company with $[Amount] USD, subject to the terms of this Agreement.
3. Grant Precondition
This Agreement shall not take effect until the Company has received a grant from the …………………Foundation.
4. Conversion Terms
The STACK Note shall convert into equity upon the first to occur of the following events:
4.1 Qualified Equity Financing
Upon the Company raising an equity round of at least {$Amount} USD with a lead investor on priced terms (“Qualified Equity Financing”), the Note will convert automatically at the lower of:
· A Valuation Cap of {$Amount USD}, or
· A Discount Rate of {Amount%} off the price per share in the financing.
4.2 Liquidity Event
If the Company undergoes a change of control or IPO prior to conversion, the Investor may elect either:
· Repayment of the full Investment Amount; or
· Conversion into common equity at the Valuation Cap.
4.3 Maturity Date
If neither of the above occurs within 24 months, the Investor may elect:
· Conversion into equity at the most recent internal or 409A valuation; or
· Extension of the Note for an additional term.
5. Founder Alignment Kicker
Upon conversion, the Investor shall receive an additional {Amount%} of the converted equity as a “Capital Kicker,” in recognition of early-stage alignment and strategic contribution.
6. Use of Funds
Funds must be used for legitimate business development, fundraising, product development, and operational activities. Use for personal expenses, dividends, debt repayment, or other non-strategic purposes is strictly prohibited.
7. Representations and Warranties
The Company represents that:
· It is duly incorporated and authorized to execute this Agreement;
· It has not issued more favorable convertible securities without disclosing them;
· It is solvent and not under insolvency proceedings;
· All information provided to the Investor is materially accurate.
8. Dissolution Rights
In the event of a voluntary or involuntary dissolution of the Company prior to conversion, the Investor shall receive priority repayment of the full Investment Amount before any distribution to common shareholders.
9. Conversion Mechanics
The conversion shall be automatic and self-executing upon a Qualified Equity Financing. Shares issued shall be of the same class and rights as those issued in the triggering round. Investor may execute any additional documents reasonably required to effect such conversion.
10. Equity Financing Definition
A Qualified Equity Financing is defined as a priced equity round of at least {$Amount USD}, led by a professional investor, with a fully negotiated cap table and post-money valuation.
11. Subordination and Ranking
The STACK Note shall rank pari passu with other SAFE or convertible instruments unless otherwise agreed. It shall be senior to common stock, but junior to secured creditors.
12. Anti-Dilution Protection
Investor shall receive broad-based weighted average anti-dilution protection upon conversion, protecting against down-round dilution events.
13. Pro Rata Rights
The Investor shall have the right to participate in future financing rounds to maintain its ownership percentage (pro rata), subject to reasonable limitations and documentation.
14. MFN Clause
If the Company issues another convertible instrument with more favorable terms (e.g., lower cap or higher discount), Investor may elect to adopt those terms.
15. Founder Restrictions
While the STACK Note is outstanding:
· Founders may not receive annual cash compensation exceeding {$Amount USD} without Investor consent.
· Founders may not exit the company or reduce role below full-time without written notice and approval.
16. Board Observer Rights (Post-Conversion)
Following conversion, Investor may appoint one non-voting observer to attend Company board meetings, receive notices, and review board materials.
17. Tax Withholding and Reporting
Each party is responsible for its own tax reporting. If applicable, the Company shall withhold or report any required taxes per local laws. The Investor acknowledges the STACK Note does not constitute equity for tax purposes until conversion.
18. Prepayment Restriction
The Company may not repay or redeem this Note prior to conversion or maturity unless agreed in writing by the Investor.
19. Transfer Restrictions
The STACK Note may not be transferred or assigned by the Company. The Investor may transfer to affiliated funds or SPVs upon written notice.
20. Change of Control Clause
In the event of a merger, acquisition, or change of control, the Investor shall:
· Convert into common stock at the Valuation Cap, or
· Be repaid the Investment Amount, at Investor’s election.
21. Information Rights
The Company shall provide the Investor with:
· Monthly updates via …………systems
· Quarterly cap table reports
· Annual financial statements and fundraising reports
22. Bankruptcy and Default
If the Company files for bankruptcy or enters formal insolvency prior to conversion, the Investor retains repayment rights and may initiate legal action to recover the Investment Amount.
23. Valuation Procedure (Fallback)
If a Qualified Equity Financing does not occur, valuation for conversion at maturity shall be:
· Determined by the most recent independent valuation (e.g., 409A), or
· Agreed upon by both parties based on industry benchmarks.
24. No Debt or Dividends
The Company shall not incur material debt or issue dividends while this Note is outstanding, without Investor approval.
25. Confidentiality
Both parties agree to maintain strict confidentiality over the terms and documents of this Agreement and any related negotiations.
26. Compliance with Laws
The Company shall remain in compliance with all applicable securities, tax, and corporate laws throughout the life of the STACK Note.
27. Governing Law & Dispute Resolution
This Agreement shall be governed by the laws of the {Place}. Any dispute shall be resolved by binding arbitration under the rules of the AAA in {Place}.
28. Miscellaneous
· Entire Agreement: This Agreement constitutes the full understanding of the parties.
· Amendments: Only effective if in writing and signed by both parties.
· Counterparts & E-signatures: This Agreement may be executed digitally and in counterparts.
· No Waiver: Failure to enforce a term does not waive future enforcement.
· Survival: Sections 5–27 survive termination or maturity.
29. Signatures
{The Fund}
By: ___________________________
Name: [GP Representative]
Title: General Partner
Date: _______________
[Startup Name]
By: ___________________________
Name: [Founder Name]
Title: CEO
Date: _______________
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