What are the steps to collect against a SAFE investment contract? I have a fund that signed a SAFE (simple agreement for future equity) and wants to invest $400k in my company. It has been 2 months and they haven't sent the money. This had materially impacted my company. They have $85M in assets. How can I collect what I am owed and how long does this process typically take?
A SAFE is basically what used to be called a &quot;subscription agreement&quot;, i.e. an agreement to invest money in the future that will ultimately give rise to an equity investment if made. From a practical perspective, while the contract is legally enforceable, pursuing a lawsuit to enforce it is almost always a death knell level bad move. Firms who sue investors early in the game don't get future investors. The amount of time it takes to enforce such an agreement in a lawsuit is also too long (perhaps a year or two before you have money in hand if it runs its course and still many months if it settles), and the cost of doing so is too great (probably more than $40,000 that you won't get back to bring in $400,000), for it to make sense to do so at the delicate early stage of a start up. Instead, what you need to do is get on the phone with the investor, or quite possibly meet in person, at their offices or in a more casual deal making environment over drinks, for example, to figure out what is troubling them or slowing things up and how to make them happy. This is more of a function of continuing to sell the fact that you are good investment and an opportunity that they are missing out on, than it is about telling them about your legal rights. If this fails, it is probably wiser to seek financing from someone else than to force them to perform.
It should be legal (though I can't find an analogous case where the court has ruled that it is). There is a regulation summarizing the government's position (thus, what will be enforced in 17 CFR 240.10b, which prohibits use of "manipulative or deceptive device or contrivance" in stock trading. Section 240.10b5-1 says: The “manipulative and deceptive devices” prohibited by Section 10(b) of the Act (15 U.S.C. 78j) and §240.10b-5 thereunder include, among other things, the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. The executives clearly have a direct duty of trust of confidence. Section 240.10b5-2 enumerates the following duties: (1) Whenever a person agrees to maintain information in confidence; (2) Whenever the person communicating the material nonpublic information and the person to whom it is communicated have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality; or (3) Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the information may demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties' history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information. In the hypothetical, (1) is plainly not applicable. (2) is predicated on having a relationship (which doesn't exist) and the information-having expecting you to keep the information secret (he doesn't know that you have overheard them). (3) is likewise not applicable. The basic rule is that you can't "misapproprate" information, but you can use information that falls into your lap (even from a person who has a duty to not disclose the information). This subsection starts saying "For purposes of this section, a “duty of trust or confidence” exists in the following circumstances, among others", which means they aren't necessarily giving you an exhaustive list. Still, there is currently no legal basis for prosecuting a person who overhears information from someone he has no relationship to, even if you are pretty confident that the information has not been made public.
You have a fiduciary duty as a director to act in the best interests of the company. Not your interests, not his interests, not the shareholders' interests (individually or as a group); the company's interests. You must also separate the other guy's performance as an employee from his performance as a director. If he is not performing as an employee then the correct course of action is to sack him as an employee, not as a director; and vice-versa. If he turns up to the board meetings and considers the information he is given as a director then he is not "performing poorly" in that role. However, provided you follow the law and your company's constitution I have no doubt this would be legal. You need to consult a lawyer before you do anything - it can't be the company's lawyer because he does have a conflict of interest. Notwithstanding its legality, it's a stupid idea. It doesn't fix the fundamental problem: you are in business with someone you don't want to be in business with. You need to find a way to not be in business with him and to start that process by ticking him off is a bad move. You need to reach agreement on how to end your relationship: just shoving him out while he is still a shareholder will have him looking for the first opportunity to sue you and the company the instant it underperforms.
This is largely a contract law issue, with little to do with intellectual property. Let's take a closer look at Offer and Acceptance of a Contract. An Offer or Acceptance can be made: Orally In writing By conduct First, you offer your client a written contract, with terms and conditions. Your client refused to accept. There is no contract. Then, your client offers you another contract, orally: We still want you to move forward with the project. We will give you $X as deposit, and then you will begin work. After the project is completed, we will deposit another $Y to you. It is irrelevant whether $X and $Y are the same as in the written contract or not. This is a separate contract, and the original terms you proposed does not apply. Did you accept this contract? From Felhouse v. Bindley (1862): Acceptance must be communicated clearly and cannot be imposed due to silence of one of the parties. Since you accepted the deposit and began work, you have accepted the contract by conduct. This is a contract where there is no terms and conditions besides that one sentence mentioned by your client. Furthermore, you intent to carry on this contract (you wish to complete the project and get the money). This contract has benefits to you for Consideration. Would it have made a difference? Suppose that your client's response is: We are sorry, our company has a weird policy about accepting contracts in writing, 30 people have to approve it and it takes 3 months. Would you take a verbal acceptance? We will give you $X as deposit and you will begin work, after work is finished we will give you $Y, as stated in the contract. Then this would be an oral acceptance of the original (written) contract with terms and conditions. But that cannot happen, since the client explicitly refused your offer. An acceptance must be unconditional. Qualification of terms of offer means to destroy the original offer. Counter-offer means to reject the original offer. Can the client use the deposit as evidence that there is a verbal contract? Yes, certainly. But this contract is not the un-signed contract. Read this conversation, again, carefully: We still want you to move forward with the project. We will give you $X as deposit, and then you will begin work. After the project is completed, we will deposit another $Y to you. There is no mention that your proposed terms and conditions apply, is there? Even if the client, after 2 weeks, come back to you and says: Sorry for refusing your offer earlier. After due consideration, we think your company's proposal is best. We would like to move forward with you. It will be $X for the deposit, and $Y after completion. All your proposed terms and conditions apply. Deal? This time your client is making an Offer. If you accept, it will be a new contract, not the same one you offered to the client earlier. About the money. This is really a case by case situation. Depending on how much the entire project is completed and the nature of the project, results can be different. A deposit is necessary to begin work. The deposit secures the client's intention to carry on the project. The final payment is make after work is finished satisfactorily. Isn't the current situation exactly what a deposit is for?
Better to start fresh. From an investor's perspective, an old C-corp inherently leaves open questions over whether there are any skeletons in the closet and the dollar cost and effort involved is trivial.
is there any legal action I can take against the dealership to enforce their compliance with our contractual agreement? Yes, you can sue for breach of contract. You would probably seek an order for specific performance. You could also claim damages but it is difficult to see exactly what damage you have suffered. Is there a reasonable timeline that they must deliver within if a date is not specified in the contract? Yes, where a contract is silent on a date for performance of an obligation they must be carried out in a reasonable time. From the circumstances 4 months is starting to seem unreasonable but they will no doubt argue that it is reasonable- this is something the court would decide.
What should I do? Don't get intimidated, don't sign/accept/submit to his "agreement" now that you are securing employment elsewhere, and make sure that henceforth all your communications with the CEO &amp; his startup be --or continue to be-- in writing. The CEO's attempt to be reimbursed is pure non-sense because hitherto there is no mutually agreed clause between you two to that effect. Generally speaking, compensation is for the professional's work, not for his employment spanning "n" pay periods. Having there been no employment/founders agreement of any type, he will be unable to prove that this was agreed any differently in your case. Furthermore, the CEO's threat to seek reimbursement of your earned compensation unless you submit to his "mutual" agreement not only amounts to extortion, but it also reflects his cluelessness about contract law. For instance, that contracts which are signed under hardship or duress are voidable. By contrast, submitting to his conditions will needlessly impose on you the burden of proving duress once you decide the situation is unsustainable. This is in addition to the legal weight with which your acceptance and subsequent conduct would support the CEO's allegation(s) that you two have "at all times" been in a cognizable contractual relation. Being realistic, it is highly doubtful that a startup which pays you weeks late is able --or even willing-- to spend money on a lawyer for nonsense like this.
the first two highlighted parts seem to contradict each other. No, in this case they do not. The first highlighted portion refers to works or items produced "for or under the direction of the Company", whereas the second highlight refers to your creations that satisfy conditions (a) and (b). Where contradictions actually exist, the doctrine of contra proferentem entitles you (the non-draftsman of the contract) to adopt the portion or reasonable interpretation that favors your legal position. Also wondering how valid those statements actually are They are valid and become enforceable as soon as you sign the contract or your subsequent conduct reflects your acceptance thereof. it's a matter of privacy. So the question is what I can do or what the reality is of the situation The reality is that you are asked to sign a contract that is abusive and ridiculous. One vulnerability from describing your inventions (presumably in Appendix A) is that the employer gets "irrevocable, worldwide, etc" rights on them as soon as you "use or disclose any [items listed in Appendix A] when acting within the scope of [your] employment". This means that if instead of reinventing the wheel you share or apply any portion of your prior creations so as to enhance your productivity, you knowingly and irreversibly grant to the employer perpetual rights to those items. Legal disputes regarding APIs can become extremely intricate. And, since judges usually have no decent background on IT, even those few judges with integrity are unlikely to grasp the key subtleties that would lead to a correct ruling. "not useful with or related to any Company Interest" is very vague. The company could be interested in literally anything these days. Clauses which are too vague or excessively wide-encompassing are supposedly stricken as unconscionable, unenforceable, etc. However, I personally would foreclose upfront the risk of judicial hassle and decline the abusive contract. Legal issues aside, keep in mind that you are offering your expertise (in terms of supply &amp; demand, you are on the supply side). This fact has a less derogatory connotation than "asking for a job". Accordingly, the relation between the parties should be more leveled.