Preliminary Cofounder Agreement — Lantern

Effective Date: ____________________ (If no Effective Date is entered above, the Effective Date is the date of the last Cofounder signature on this Agreement.)Status: Preliminary Agreement (pre-incorporation, pre-legal counsel) Version: 1.0 — Draft

Important Disclaimer

THIS IS A PRELIMINARY AGREEMENT intended to document mutual understanding and intent between cofounders before formal legal incorporation and attorney review. It is not a substitute for:

Formal articles of incorporation
Attorney-drafted founder agreements
Operating agreement or bylaws
Proper equity grant documentation (83(b) elections, restricted stock agreements)

All parties acknowledge this document will be superseded by formal legal agreements drafted with qualified legal counsel. However, the principles, commitments, and protections outlined here represent binding good-faith commitments between the undersigned cofounders.

Areas Requiring Cofounder Review Before Signing

📌 The entire document should be read and understood by every cofounder. The items below are specific sections where decisions, numbers, or parameters must be discussed and agreed upon by the founding team before this agreement can be executed. These are not optional — they are blanks that must be filled or choices that must be made.

#	Section	What needs to be decided	Where to find it
1	Pre-revenue buyback formula	How do we value a departing cofounder's work before the company has revenue? Four options presented — team must select one.	§10.4 — Fallback formula options
2	Phase-down schedule	At what revenue milestones do new equity grants shrink? Example numbers provided — team must confirm or replace.	§5.6 — Phase-Down Schedule
3	Living wage floor benchmark	Which city is the highest cost-of-living location? What's the starting floor?	§6.4 — Living Wage Floor
4	Monthly stipend amount	Do cofounders receive a monthly stipend pre-revenue? If so, how much?	§6.2 — Pre-Revenue Period
5	Focus category assignments	Which cofounder leads which focus area?	§3 — Focus Category Table
6	Vesting start dates	Each cofounder records their individual vesting start date.	Signatures
7	Pre-selected arbiter	Who serves as the independent arbiter for disputes? Backup?	§10.6 — Independent Arbiter
8	Pre-selected Mission Arbiter	Who serves as the Mission Arbiter? (May be same person as §10.6 arbiter.)	§9.4 — Mission Arbiter
9	Pre-existing IP disclosures	Each cofounder must list any IP they're bringing into Lantern, or write "None."	Exhibit A
10	Capital contributions	Document any money cofounders have put in, or write "None."	Exhibit B
11	Beneficiary designations	Who receives your buyback payment if you die?	Exhibit C
12	Spousal consent / marital status	Every cofounder must disclose marital status. Married cofounders need spouse consent.	Exhibit E
13	Cofounder 1 profit contribution	Review and confirm the terms of Cofounder 1's voluntary profit share redirection.	Exhibit D

How to use this list: Work through each item as a team. For items with example numbers (rows 1-2), discuss and replace with agreed values. For items with blanks (rows 3-8), fill them in. For exhibits (rows 9-13), each cofounder completes their own section. Once all 13 items are resolved, the agreement is ready for signature.

Disclaimer — non-binding preliminary status; to be superseded by formal agreements
1. Parties — identifies the cofounders
2. The Company — project overview, mission, and intended entity type
3. Roles & Responsibilities — focus areas and the cofounder / C-suite / employee-owner distinction
4. Decision-Making — protective tiers, decision matrix, flow diagrams, emergency decisions, dispute resolution
5. Equity & Profit Sharing — founding split, vesting, cliff protection, admitting new cofounders, reserve pool
6. Compensation — profit-sharing formula, phase triggers, living wage floor, salary rules
7. Intellectual Property Assignment — IP ownership, pre-existing IP disclosure, third-party licensing
8. Confidentiality — scope, duration, permitted disclosures
9. Governance Commitments — immutable rights, employee-ownership model, anti-greed safeguards, mission arbiter, indemnification
10. Departure & Separation — voluntary/involuntary departure, mandatory buyback, disability, death, trade-secret protection, spousal consent / community property, bankruptcy / creditor claims, return of Company property
11. Expenses & Financial Management — expense rules, anti-manipulation, funding approval, financial transparency
12. Commitment, Accountability & Integrity — conflicts of interest, contribution logging, accountability process
13. Amendments — how this agreement can be changed
14. Governing Law — California law; San Diego arbitration
15. Severability — standard severability clause
16. Entire Agreement — document hierarchy and order of precedence
Signatures
Exhibit A — Pre-Existing Intellectual Property
Exhibit B — Initial Capital Contributions
Exhibit C — Beneficiary Designations
Exhibit D — Cofounder 1 Pre-Incorporation Profit Contribution
Exhibit E — Spousal Consent & Marital Status Disclosure

1. Parties

Cofounder 1: Name: Mechelle Warneke Email: ____________________

Cofounder 2: Name: ____________________ Email: ____________________

Cofounder 3: Name: ____________________ Email: ____________________

Cofounder 4: Name: ____________________ Email: ____________________

Cofounder 5: Name: ____________________ Email: ____________________

Cofounder 6: Name: ____________________ Email: ____________________

Each referred to as a "Cofounder" and collectively as the "Cofounders."

2. The Company

Project Name: Lantern

Domain: ourlantern.app

Description: An anonymous, real-time people-meeting app anchored to physical venues, available as a PWA and native apps on Android and iOS. Users "light lanterns" at bars, cafes, and restaurants to signal availability for meeting people. Merchant-facing monetization — merchants pay to promote their own venue and offers within the Lantern app (sponsored placements, featured deals, and promoted listings) — is a deliberate part of the business model and a focus category under Section 3. All advertising is internal to the Lantern platform only. The Company does not run external ad campaigns (Google, Meta, or any third-party ad platform), does not operate as an ad network, and does not share, sell, or expose user data to any external advertising system. This constraint is a direct consequence of the privacy-by-design mission and Immutable Right #6 (no data sales, ever).

Mission: To make meeting people feel natural, safe, and human — anchored to real places, with privacy by design.

2.1 Intended Entity

To be incorporated under a legal form that supports employee ownership and mission-lock governance aligned with /docs/governance/. The specific entity type is deliberately left open and will be determined with qualified legal, tax, and cooperative-law counsel before incorporation. Candidate structures the Cofounders will evaluate include (non-exhaustive):

a Delaware or California C-Corp, potentially paired with an ESOP (Employee Stock Ownership Plan) trust and/or PBC (Public Benefit Corporation) election;
a California Cooperative Corporation or Worker Cooperative Corporation (Cal. Corp. Code §§ 12200, 12240 et seq.);
a Delaware or California LLC with a cooperative operating agreement;
or another structure counsel identifies as better suited to the employee-ownership and mission-lock commitments in this Agreement.

Entity choice, ownership mechanism (direct employee stock ownership vs. ESOP trust vs. cooperative membership interest), and state of formation are interrelated decisions with material tax and governance consequences, and will be resolved together as part of the incorporation process described below.

"Operating Agreement" as umbrella term. Throughout this Agreement, references to the "Operating Agreement" mean the Company's primary governing document as adopted at incorporation — whatever form that document takes under the chosen entity type (Bylaws for a C-Corp or cooperative corporation, Operating Agreement for an LLC, or the equivalent under another structure). The term is used for readability; the legally operative document is whichever governing instrument counsel adopts in Section 2.2 item 2.

2.2 Incorporation Process

Throughout this Agreement, the terms "incorporation," "incorporated," "formation," and "formed" are used interchangeably to accommodate any entity type selected under Section 2.1. They refer not to a single filing but to the completion of all of the following acts. Provisions of this Agreement contingent on incorporation do not take effect until every item below is complete and documented:

Entity formation filing — filing with the chosen state (Delaware, California, or as counsel directs) of a Certificate of Incorporation (C-Corp), Articles of Incorporation (cooperative corporation), Articles of Organization (LLC), or the equivalent formation instrument required by the selected entity type.
Governing document adopted — adoption of Bylaws (C-Corp or cooperative corporation), an Operating Agreement (LLC), or the equivalent governing instrument for the selected entity type, consistent with — and where necessary superseding — the substantive provisions of this Agreement, drafted with qualified counsel.
Equity issued to Cofounders — formal issuance to each Cofounder of either:
- restricted stock subject to the vesting schedule in Section 5.2, with executed Restricted Stock Purchase Agreements and timely 83(b) elections filed with the IRS within the statutory 30-day window (26 U.S.C. § 83(b)), or
- membership interests or cooperative membership shares with economically equivalent vesting restrictions (for an LLC or cooperative corporation, respectively), with any analogous tax elections counsel recommends for the chosen form.
IP assignments executed — each Cofounder signs a Confidential Information and Invention Assignment Agreement (CIIAA) transferring to the entity all Lantern-related IP developed before and after incorporation, implementing Section 7.
Federal tax registration — the entity obtains an Employer Identification Number (EIN) from the IRS.
Banking separation — the entity opens a business bank account in its legal name, and all Company funds are thereafter segregated from personal accounts, implementing Section 11.
State compliance — any additional state-level registrations required for the entity to lawfully transact business in California (e.g., foreign qualification if Delaware-formed, Statement of Information, initial franchise tax where applicable).

Counsel engagement required first. Because several of these acts have tight statutory deadlines (notably the 30-day 83(b) election window) and require specific drafting that affects every Cofounder's tax position, the Cofounders shall engage qualified startup/corporate counsel before initiating any of the steps above. No Cofounder shall attempt to self-execute incorporation without counsel review.

Acknowledgment of completion. Incorporation is deemed complete when all seven acts above are finished and the Cofounders jointly sign a short written acknowledgment (email chain with all Cofounders' assent is sufficient) confirming completion, referencing this Section. That acknowledgment is the event that activates every "upon incorporation" provision elsewhere in this Agreement.

2.3 Pre-Incorporation Legal Status

Until the Company is formally incorporated, the Cofounders acknowledge that their joint activity on behalf of Lantern may, by default under California law (Cal. Corp. Code §§ 16101 et seq., the Uniform Partnership Act of 1994), be treated as a general partnership. A general partnership exposes each Cofounder to joint and several personal liability for debts, contracts, and tortious acts undertaken in the ordinary course of the business by any other Cofounder. The Cofounders therefore agree to (a) pursue formal incorporation promptly and treat incorporation as a priority milestone, (b) avoid incurring material obligations, signing contracts, or holding out the venture to third parties as an established entity prior to incorporation except where strictly necessary and approved under Section 11, and (c) upon incorporation, have the entity assume and indemnify the Cofounders against qualifying pre-incorporation obligations to the fullest extent permitted by law. This paragraph is a good-faith acknowledgment of existing legal exposure; it does not create a partnership by intent, and the Cofounders' internal rights among themselves are governed by this Agreement.

2.4 Incorporation Timeline

The protections, governance mechanisms, and equity structures described throughout this Agreement are designed to operate inside a formal legal entity. Remaining in "preliminary" status indefinitely weakens nearly every clause. Rather than imposing a standalone timeline, incorporation is anchored to the same milestones that drive the rest of the Company's lifecycle.

Primary Trigger — Phase 2 (Section 6.3): Formal incorporation shall be completed on or before the Company reaches Phase 2 (salary trigger — $100K MRR or seed funding). Phase 2 is the natural incorporation point because it is the moment the Company begins paying W-2 salaries, hiring C-suite, activating Tier 3 as an independent governance gate, and — in the seed-funding path — taking on outside capital that itself requires a legal entity. Salaries shall not be paid and C-suite shall not be hired as W-2 employees until incorporation is complete.
Acceleration Triggers (events that may precede Phase 2): Incorporation must be filed before, not after, any of the following — each of which is a scenario where operating as an unincorporated partnership creates disproportionate risk:
- Accepting any external investment, loan, convertible instrument, or SAFE from a non-Cofounder source (including pre-seed, angel, and friends-and-family rounds below the Phase 2 seed-funding threshold)
- Issuing a W-2 paycheck or equity grant to any person who is not a party to this Agreement
Phase 1 Stall Backstop: If the Company has been in Phase 1 ($10K–$100K MRR, see Section 6.3) for more than twenty-four (24) continuous months without reaching Phase 2, the Cofounders shall convene a mandatory Tier 2 decision meeting (Section 4.1) at the next anniversary of the Effective Date and resolve one of:
1. Proceed to voluntary incorporation ahead of Phase 2, accepting the administrative overhead in exchange for stronger legal protection.
2. Document continued deferral — record a specific, time-bound reason (e.g., active acquisition conversation, imminent funding round) that justifies remaining unincorporated, subject to the same review again twelve (12) months later. Deferral may be invoked at most twice consecutively; after that, Option 1 or Option 3 is the only permitted outcome.
3. Dissolve the venture under Section 4.2, subject to surviving IP, confidentiality, and non-disparagement obligations.
Pre-Phase 1 Default: Before the Company generates any revenue or reaches the Phase 1 profit-sharing trigger, the Cofounders may remain unincorporated without a forced checkpoint, subject always to the Acceleration Triggers above. This reflects the reality that pre-revenue, pre-hire, pre-capital activity carries modest third-party exposure and does not yet benefit meaningfully from the cost of maintaining an entity.
Annual Re-Ratification (while preliminary): For so long as the Company remains unincorporated, the Cofounders shall re-sign and date this Agreement on each anniversary of the Effective Date to affirm it still reflects their mutual intent. Failure to re-ratify does not void the Agreement but triggers a Tier 2 review at the next regularly scheduled meeting.

The purpose of anchoring incorporation to Phase 2 (with acceleration triggers and a stall backstop) is to make the timeline self-consistent with the rest of this Agreement: the same milestones that unlock salaries, expand governance, and admit outside money also close the window on preliminary status. Incorporation converts every "upon incorporation" provision in this Agreement from aspiration into an enforceable right, and limits the personal liability exposure described in the preceding paragraph.

3. Roles & Responsibilities

Decision-Making Framework (at a glance)

This Agreement uses a three-tier decision-making framework. Each tier corresponds to a distinct constituency and a distinct kind of decision, and is referenced throughout the document. The table below is the orientation; full procedures, thresholds, mediation, override mechanics, and voting rules live in Section 4. Decision-Making (Pre-Incorporation) — this overview exists so that every forward reference to a tier in this Agreement has a short answer available without jumping sections.

Tier	Who votes	Threshold	What it covers
Tier 1	Any individual equity holder (Cofounder, C-suite, or outside employee-owner) on changes to their own equity	Personal veto (unoverridable)	Changes to the holder's own equity, vesting, or already-vested shares. Applies in every era — Cofounder, post-Cofounder, and any successor governance structure. See §4.1 and §10.4 (Tier 1 protections transfer).
Tier 2	Cofounders and C-suite (dual-gate)	75% of active Cofounders and 50%+1 of active C-suite (when C-suite exists)	Major decisions: sale, merger, acquisition, external investment, admitting new Cofounders, amendments affecting governance, dissolution — see §4.2
Tier 3	Equity-granted employees who are not Cofounders and not C-suite	⅔ supermajority of the Tier 3 voter class	Independent outside-employee check on ownership-and-existence decisions (sale, investment, amendments affecting employee-owner rights, living wage floor). Dormant until the first outside employee-owner is granted equity; activates automatically thereafter — see §4.1 Tier 3

The three tiers map cleanly to three kinds of check: Tier 1 is the individual equity holder's personal veto on their own equity (held by whoever holds equity — Cofounder, C-suite, or outside employee-owner — and it applies only to that person's own stake); Tier 2 is the Cofounder + C-suite leadership dual-gate on major decisions; Tier 3 is the outside employee-owner independent check on ownership-and-existence decisions. No person casts more than one vote per decision at the collective-voting gates — Cofounders vote at the Tier 2 Cofounder gate; C-suite votes at the Tier 2 C-suite gate; outside employee-owners vote at Tier 3. Tier 1 isn't a collective vote; it's a personal veto every equity holder has on changes to their own equity — it never overlaps with Tier 2 or Tier 3 because it only operates when the decision targets that specific individual's equity.

Formal titles (CEO, CTO, COO, etc.) have not yet been assigned. Each Cofounder agrees to contribute in their primary area of strength during the pre-revenue period. Titles and role definitions will be formalized as the team structure solidifies, guided by the Team Structure framework.

Rather than pre-assigning titles, this agreement defines focus categories — the areas of work the Company needs owned. Each Cofounder names the category (or categories) they are taking at signing by writing their name in the Current Lead column. Categories are durable; leads can shift as the team learns what the Company needs, without amending the structure of this agreement.

Focus Category	What It Covers	Current Lead
Technology Architecture	Platform decisions, technical direction, security posture	______________
Engineering Delivery	Hands-on build, shipping features, code quality	______________
Analytics	Business and performance metrics, reporting, data-informed decisions	______________
Marketing & Offers Platform	App marketing and brand communications (content, social, PR, organic channels), and the in-app merchant offers platform (hero and venue-specific placements, offer inventory, merchant-facing promotional tools). Hard constraint: customer data is never a product — this role may not sell, license, trade, or otherwise monetize user data to any third party under any circumstances, consistent with the privacy-by-design mission in Section 1. External paid media and off-platform advertising are out of scope unless and until the Cofounders decide otherwise under Section 4.2.	______________
Operations	Internal ops, admin, finance (until formalized)	______________
Growth & Merchant Partnerships	User acquisition, retention, merchant onboarding	______________

How to fill this in: At signing, each Cofounder writes their name next to the category (or categories) they are committing to lead. A Cofounder may lead more than one category in the pre-revenue phase. A category may also be marked as open if the Company is still recruiting the person who will own it — this is expected and honest rather than a gap to hide.

Role changes: A Cofounder may hand off, split, or pick up a focus category at any time with written consent of all Cofounders. Because this table is categorical (not title-locked), changes of lead do not require a formal amendment to the agreement — only a written record shared with all Cofounders.

Role formalization: When formal titles are assigned (typically at or after incorporation), this section will be updated via written amendment signed by all Cofounders. At that point, categories often become titles — or split into two roles as the team grows.

Open-category review trigger: If a focus category remains open (no designated lead) for more than 6 months while active work in that category is stalling — missed deadlines, unresolved decisions, or customer-facing issues — the Cofounders shall convene a mandatory review under Section 4.2 (Cofounder supermajority) to resolve one of: (a) hire or reassign a lead, (b) split or merge the category, or (c) explicitly de-prioritize category work with a written rationale and a re-review date. This trigger is a safety net against indefinite drift — it does not force coverage when a category genuinely isn't ready to be owned, but it does force an explicit decision rather than silent neglect. Governance floor decisions (Tier 1/2/3, Immutable Rights, Mission Arbiter review) are unaffected by an open category and always have a clear authority path via the tiered protections in Section 4.1.

Cofounders vs. C-suite vs. Employee-owners:

This agreement governs the Cofounder relationship. As the Company grows, three distinct groups will exist:

Cofounders — the founding team (parties to this agreement). Cofounders are always cofounders — this status is permanent regardless of future title changes. Cofounders hold full governance rights as defined in this agreement: Tier 1 (individual veto on changes to their own equity), the Tier 2 Cofounder gate, removal vote, and other veto rights. Cofounders do not vote at Tier 3 — Tier 3 is reserved as an independent outside-employee check.
C-suite (hired) — senior leadership hired once the Company reaches Phase 2 (salary trigger). C-suite members are employees with operational authority in their domain, but they do not hold cofounder-level governance protections. Their governance voice is the Tier 2 C-suite gate (Section 4.2); C-suite does not vote at Tier 3. C-suite hiring and compensation are operational decisions governed by the Company's employment policies and Operating Agreement. C-suite removal is governed by the "C-suite removal protections" provisions below.
Employee-owners — all employees who hold equity. This is the broad ownership class for purposes of profit sharing (Immutable Right #4), Immutable Rights protections, and economic rights generally. It includes Cofounders and C-suite (who are also employee-owners), plus any other employees granted equity from the employee pool.
Tier 3 voter class — a narrower subset of employee-owners that excludes both Cofounders and C-suite, used only for Tier 3 governance votes (Section 4.1). Equity-granted employees who are not Cofounders and not C-suite vote at Tier 3. Cofounders' governance voice is Tier 1 plus the Tier 2 Cofounder gate; C-suite's voice is the Tier 2 C-suite gate per Section 4.2. The broad "employee-owner" class is about ownership economics; the Tier 3 voter class is about keeping an independent outside-employee check on ownership-and-existence decisions, separate from leadership's own votes.

Active Cofounder. A Cofounder is "active" until their departure date under Section 10. Approved leave, an ongoing accountability process under Section 12.4 (including any improvement-plan period), and the 30-day notice window following a voluntary-departure notice under Section 10.2 do not suspend governance voting rights; delegated operational authority and vesting may be separately affected per the relevant section. Every governance threshold in this Agreement that is expressed as a percentage of "active Cofounders" uses this definition for both the numerator and the denominator.

Active C-suite member. A C-suite member is "active" from the effective date of their appointment through their departure date (whether voluntary resignation, for-cause removal, or transition to another role). Approved leave, an ongoing accountability process under Section 12.4, and any notice period do not suspend governance voting rights at the Tier 2 C-suite gate; delegated operational authority may be separately affected per the accountability process. Every governance threshold expressed as a percentage of "active C-suite members" uses this definition for both the numerator and the denominator. This mirrors the "active Cofounder" definition above.

📌 Note: The governance rights, protections, and processes for C-suite and employee-owners (hiring, accountability, termination, operational authority) will be formalized in the Company's Operating Agreement upon incorporation. This Cofounder Agreement governs the founding team only — but the C-suite removal protections below are binding principles that the Operating Agreement must reflect.

C-suite removal protections:

C-suite members are not permanent like Cofounders are (see Section 10.3 — Cofounder status is permanent). However, to prevent arbitrary or retaliatory termination, C-suite removal requires all three of the following:

Documented cause — the same standard as Cofounder removal under Section 10.3: material breach of their employment agreement, failure to fulfill role responsibilities for 30+ consecutive days without approved leave, actions that materially harm the Company, or conviction of a felony or crime of moral turpitude. Honest disagreement, underperformance addressable through the accountability process, or good-faith errors are not cause.
Accountability process completed first — the steps in Section 12.4 (informal check-in, formal written notice, improvement plan with interim measures, and resolution) apply to C-suite members exactly as they do to Cofounders. Removal without completing this process is itself a governance failure that may be petitioned by employee-owners.
Cofounder supermajority approval — removal requires supermajority of all active Cofounders (75%, rounded up, per Section 4.2).

Post-Cofounder era: Once all Cofounders have departed and C-suite has inherited operational governance (Section 10.4 governance succession), C-suite peer supermajority (75% of all active C-suite members, rounded up) replaces Cofounder supermajority as the removal approval threshold. A C-suite member may not vote on their own removal. If fewer than 3 C-suite members exist, removal decisions adjust per the same "checks break down" logic as Section 4.2 for small Cofounder counts — and the independent arbiter (Section 10.6) serves as required procedural gatekeeper at 2 C-suite members, mirroring the 2-Cofounder edge case.

Anti-stacking protections:

The C-suite gate in Section 4.2 is meant to be an independent check on Cofounders. That check is undermined if Cofounders can fire a resistant C-suite member and immediately replace them with someone who will rubber-stamp. The following protections prevent this:

Replacement cooling period: After a C-suite member is removed, the Cofounders must wait 60 days before seating a permanent replacement in that role. During the cooling period, an interim appointee may handle operational duties but does not vote at the C-suite gate in Tier 2 decisions. This prevents fire-and-replace as a tactic to flip a vote.
No removal-and-rehire for the same decision: If a C-suite member is removed within 90 days of casting a C-suite gate vote that blocked a Tier 2 decision, and a replacement is seated who then votes to approve the same or substantially similar decision, any Cofounder or employee-owner may challenge the sequence through the independent arbiter (Section 10.6). If the arbiter finds the removal was motivated by the C-suite member's vote rather than genuine cause, the replacement's vote on that decision is voided, the removal is treated as a governance failure, and the decision must restart the Tier 2 process.
C-suite tenure expectation: C-suite members are expected to serve a minimum of 12 months absent genuine cause for removal. Removal before 12 months triggers a heightened documentation requirement — Cofounders must provide the arbiter with written justification demonstrating that the removal meets the cause standard in Section 10.3, and the arbiter must confirm the process was followed, before the removal takes effect. This does not grant C-suite members guaranteed tenure — it adds a structural check on premature removal.

Severance and equity: C-suite members removed for cause forfeit unvested equity and are subject to the Company's buyback terms for vested equity, per policies formalized in the Operating Agreement. They are not subject to the for-cause 50% buyback discount provision in Section 10.3 unless the Operating Agreement explicitly adopts it for C-suite — that provision is Cofounder-scoped by default.

Retaliation prohibited: Using C-suite removal (or the threat of it) to retaliate against a C-suite member for filing or supporting an employee-owner petition (Section 12.4), raising a good-faith governance concern, or exercising any right under this Agreement or the Operating Agreement is a material breach of this Agreement and the Operating Agreement. Anti-retaliation protection extends for 12 months after any protected act.

Employee-owner status — when it applies:

The employee-owner class exists from day one as the broad ownership class for profit sharing and Immutable Rights purposes — every Cofounder is an employee-owner by virtue of holding equity. What typically changes with Phase 2 is the composition of the class, not its existence: from Phase 2 onward, the Company begins hiring C-suite and granting equity to non-cofounder employees, and the class becomes meaningfully distinct from the Cofounder roster. However, an early non-cofounder equity grant before Phase 2 (e.g., a founding engineer) has the same effect — the class becomes distinct the moment a non-cofounder is granted equity, regardless of phase.

Effect on governance gates:

The Tier 3 voter class is always "all equity-granted employees who are not Cofounders and not C-suite." Whether Tier 3 is active or dormant is a mechanical consequence of roster composition, not of phase:

Dormant state (no non-Cofounder, non-C-suite employee-owner holds equity): Tier 3 has no voters. Decisions that would nominally require Tier 3 consent (sale, investment, amendments affecting employee-owner rights, changes to the living wage floor) require only the Tier 2 Cofounder gate — there is no outside-employee class to consent yet. This is the usual state pre-Phase 2.
Active state (any non-Cofounder, non-C-suite employee-owner holds equity, whether before or after Phase 2 — e.g., an early engineer granted equity in Phase 1): Tier 3 activates automatically as an independent ⅔ gate, voted on by the Tier 3 voter class. Both Tier 2 and Tier 3 must pass independently where both apply.

Phase 2 is the typical activation moment because that's when non-cofounder equity grants usually begin — but the trigger is the first outside equity grant, not phase status. An outside equity grant in Phase 1 activates Tier 3 as soon as the grant takes effect.

Individual status — start date:

A person becomes an employee-owner on their equity grant date:

For Cofounders: the individual vesting start date recorded at signature (Section 5.2)
For C-suite and non-cofounder employees: the effective date of their written grant agreement (to be defined in the Operating Agreement)

Individual status — end date:

Employee-owner status ends on the person's departure date (Section 10), regardless of whether buyback is complete. A departed person retains economic interest in their vested equity pending buyback (Section 10.4) but has no governance rights — they do not vote, are not counted in quorum, and do not receive profit distributions for quarters after departure.

Unvested equity does not diminish governance rights. An employee-owner with unvested equity is a full employee-owner for all governance purposes — Cofounders retain full Tier 1 and Tier 2 governance rights, outside employee-owners retain full Tier 3 voting rights and count toward Tier 3 quorum, and profit-sharing eligibility applies from the grant date regardless of vesting status. Vesting exists to deter abandonment of the work, not to gatekeep voice in company-level decisions — and because unvested equity accelerates fully on acquisition (Section 5.2), the economic stake is real from day one.

4. Decision-Making (Pre-Incorporation)

Governance Philosophy: Checks & Balances

📌 Note for legal counsel: This section uses narrative analogies (historical examples, metaphors) to explain governance principles in plain language for the founding team. When formalizing this agreement, counsel should assess whether these analogies should be retained as interpretive context, moved to a companion explainer document, or removed to avoid ambiguity in a binding agreement.

Lantern's governance is designed around checks and balances, not pure democracy or unchecked authority. History offers two cautionary tales:

The Uber problem (unchecked authority): Supervoting shares gave one founder 10:1 voting power. No amount of board votes could override him. Result: governance crisis, lawsuits, forced resignation. Lesson: concentrated power without accountability corrodes from within.
The pirate lesson (democracy with structure): Pirate crews were among the most democratic organizations of their era — they elected captains, voted on routes, and split plunder equally. The checks went in every direction: the quartermaster checked the captain (controlled supplies, settled disputes, managed the crew's interests), but the crew could also overthrow the captain entirely if they lost confidence. No one was above accountability — the captain led in battle, but served at the crew's consent. The system worked because authority flowed both ways: leaders had real power to act, but that power was always conditional on the trust of the people they led. Lesson: checks and balances must go both ways. Leaders check each other (cofounder ↔ cofounder, cofounder ↔ C-suite), and the people they serve can hold them accountable (employee-owners can petition for review of any leader). No one is untouchable.

Lantern's approach:

Layer	What it covers	Who decides	Can it be overridden?
Immutable Rights	Ownership structure, user data, salary cap, profit sharing, democratic governance	No one — constitutional	No. Not voteable, even unanimously.
Tier 1 — Block	Your own equity, vesting, vested shares	You	No. Exception: for-cause buyback discount (50% cap, contestable via arbiter).
Tier 2A — Dual-gate	Sale, investment, amending agreement, product pivots, contracts, expenses > $5K, compensation terms	Cofounders (75%) + C-suite (50%+1)	Cofounder block: advisory arbiter → N-of-N override. C-suite block: determinative arbiter.
Tier 2B — Cofounder-only	Admit/remove cofounders, hire/remove C-suite, change cofounder focus areas	Cofounders only (75%)	Advisory arbiter → N-of-N override. C-suite has no vote.
Tier 2C — C-suite-only	All Tier 2 decisions after all cofounders have departed	C-suite (75%)	Post-cofounder era. 2A and 2B collapse into 2C.
Tier 3 — Consent	Sale, investment, amendments affecting employee rights, living wage	⅔ of employee-owners (excluding cofounders + C-suite)	No. If Tier 3 fails, decision fails. Dormant until first outside employee-owner holds equity.
Delegated	Day-to-day ops, expenses under $500	Individual cofounder or C-suite member in their domain	2+ leaders (cofounder/C-suite) can escalate to Tier 2A vote.
Emergency	Security breach, legal deadline, system failure	Any cofounder or C-suite can declare; unanimous available cofounders approve	Cannot bypass Tier 3. $50K per-incident / $75K quarterly ceiling. C-suite can take immediate defensive action in their domain.
Mission Arbiter	Mission-critical decisions	On-demand independent third party	Veto on mission violations; see §9.4.

One-line summary: Constitutional floor → personal blocks → leadership checks with arbiter review → employee-owner consent → delegated speed. Every block has a path forward except Immutable Rights (permanent) and Tier 1 (your equity is yours). Every override has an independent check (arbiter). Every tier has accountability (documentation + record).

Decision Matrix (Quick Reference)

Use this table to quickly determine: what kind of decision is this, who votes, what's the threshold, and what happens if someone blocks?

Decision	Tier	Who votes	Threshold	If blocked	Arbiter role
Weaken Immutable Rights	Off the table	No one	N/A	Can't even be proposed	N/A
Change ownership structure	Off the table	No one	N/A	Can't even be proposed	N/A
Sell/monetize user data	Off the table	No one	N/A	Can't even be proposed	N/A
Change your own equity/vesting	Tier 1	You	Your consent	Block stands. No override.	N/A
Claw back your vested equity	Tier 1	You	Your consent	Block stands. No override.	Exception: for-cause discount (§10.3), contestable via arbiter
Sell / merge / dissolve company	Tier 2A + Tier 3	Cofounders (75%) + C-suite (50%+1) + employee-owners (⅔)	All three gates independently	Cofounder block: advisory arbiter → N-of-N override. C-suite block: determinative arbiter. Tier 3 block: no override.	Advisory (cofounder), determinative (C-suite). At 2 cofounders: determinative.
Accept external investment	Tier 2A + Tier 3	Same as above	Same as above	Same as above	Same as above
Admit new cofounder	Tier 2B	Cofounders only (75%)	75% supermajority	Advisory arbiter → N-of-N override. C-suite has no vote.	Advisory. At 2 cofounders: determinative.
Amend this agreement	Tier 2A + Tier 3 (if affects employee rights)	Cofounders (75%) + C-suite (50%+1) + employee-owners (⅔ if applicable)	All applicable gates	Same as sell/merge above	Same as above
Hire / remove C-suite	Tier 2B	Cofounders only (75%)	75% supermajority. Removal also requires cause + accountability process.	Advisory arbiter → N-of-N override. C-suite has no vote.	Advisory. At 2 cofounders: determinative.
Pivot product direction	Tier 2A	Cofounders (75%) + C-suite (50%+1)	Both gates	Cofounder block: advisory arbiter → override. C-suite block: determinative arbiter.	Advisory / determinative respectively
Enter binding contracts	Tier 2A	Same as above	Same as above	Same as above	Same as above
Approve expenses > $5K	Tier 2A	Same as above	Same as above	Same as above	Same as above
Set/change compensation terms	Tier 2A	Same as above	Same as above	Same as above	Same as above
Change living wage floor	Tier 2A + Tier 3	Cofounders (75%) + C-suite (50%+1) + employee-owners (⅔)	All three gates independently	Same as sell/merge above	Same as above
Day-to-day ops / < $500 spend	Delegated	Individual cofounder or C-suite member	N/A	2+ leaders can escalate to Tier 2A	N/A
Emergency (security, legal, system failure)	Emergency	Any cofounder or C-suite can declare; unanimous available cofounders approve	Unanimous cofounders + $50K cap + $75K quarterly aggregate	Cannot bypass Tier 3. C-suite can take immediate defensive action. 3+ in 90 days = mandatory review.	N/A
Remove a cofounder	Tier 2B (separate process)	All other cofounders	Unanimous other cofounders. At 2: arbiter gatekeeper.	Cannot be overridden — needs unanimity	Procedural gatekeeper at 2 cofounders

How to read this table:

Find your decision in the left column
Read across to see who votes, what threshold is needed, and what happens if someone blocks
If you're still unsure, use Diagram 1 below to classify the decision step-by-step

Decision Flow (Visual Summary)

📌 Note for legal counsel: The diagrams below are a visual summary of the decision-making process defined in §4.1–§4.5. They are intended as an aid for founder and employee-owner comprehension. Where any diagram conflicts with the governing text, the text controls. When formalizing this agreement, counsel should assess whether these diagrams remain in the binding agreement or move to a companion explainer document to avoid ambiguity.

The diagrams below cover: (1) classifying a proposed decision into the correct tier(s), (2a) the Tier 2 gate selection, (2b) the cofounder block override with advisory arbiter, (2c) the C-suite gate escalation with determinative arbiter, (3) the Tier 3 employee-owner consent gate, (4) emergency decisions under §4.5, and (5) the for-cause removal path and its narrow Tier 1 exception (the buyback discount).

Diagram 1 — Classifying a Proposed Decision

Start here for any proposed decision to determine which tier(s) apply.

mermaid

flowchart TD
    Start([Proposed decision]) --> Q1{"Q1. Protected by<br/>Immutable Rights?"}
    Q1 -->|Yes| Off["❌ OFF THE TABLE<br/>Constitutional — not voteable,<br/>not waivable, not even<br/>by unanimous consent"]
    Q1 -->|No| Q2{"Q2. Genuine<br/>emergency?"}
    Q2 -->|Yes| Emerg["⚡ Emergency track<br/>→ see Diagram 4"]
    Q2 -->|No| Q3{"Q3. Changes a Cofounder's<br/>own equity or vesting?"}
    Q3 -->|Yes| T1["🛑 Tier 1 — Personal Block<br/>Affected Cofounder's consent<br/>required. No override ever.<br/>Narrow exception: for-cause<br/>buyback discount<br/>→ see Diagram 5"]
    Q3 -->|No| Q4{"Q4. Changes ownership,<br/>compensation framework,<br/>or company existence?"}
    Q4 -->|Yes| Both["Tier 2 AND Tier 3<br/>Independent gates —<br/>both must pass separately"]
    Q4 -->|No| Q5{"Q5. Significant but<br/>not existential?"}
    Q5 -->|Yes| T2["Tier 2 dual-gate only<br/>→ see Diagram 2a"]
    Q5 -->|No| Q6{"Q6. Day-to-day or<br/>expense under $500?"}
    Q6 -->|Yes| Del["✅ Delegated — §4.3<br/>Any Cofounder may call a review;<br/>2+ concerns escalate to Tier 2"]
    Q6 -->|No| Default["Doesn't fit a category?<br/>Default to Tier 2.<br/>Any Cofounder may also<br/>invoke Tier 3 (§4.4)."]

    Both --> D2["→ Tier 2 (Diagram 2a)"]
    Both --> D3["→ Tier 3 (Diagram 3)"]

Legend for Diagram 1:

Q1 — Immutable Rights: weakening or removing any of the 10 Immutable Rights, monetizing user data, changing the employee-ownership structure, removing the salary cap, or removing profit-sharing equality.
Q2 — Genuine emergency: security or data incident, legal deadline imposed by a court or regulator, critical system failure threatening users, or time-bound contractual loss. See §4.5.
Q3 — Personal equity/vesting: changing a specific Cofounder's own equity split, vesting terms, or vesting schedule; or reducing their already-vested equity via governance.
Q4 — Ownership/existence: sale, merger, acquisition, dissolution; accepting external investment that dilutes employee equity; amending this agreement in ways affecting employee-owner rights, equity, or compensation framework; changes to the living wage floor.
Q5 — Significant but not existential: pivoting core product direction, hiring decisions (pre-incorporation), entering binding contracts, approving expenses over $5,000, setting or changing compensation terms.
Q6 — Day-to-day: decisions within a Cofounder's focus area (§3), spending under $500 with documentation, implementation choices within expertise, or routine communications.

Diagram 2 — Tier 2 Dual-Gate and Override Process

Applies once a decision is classified as Tier 2 (by itself or alongside Tier 3).

Diagram 2a — Tier 2 Gate Selection

mermaid

flowchart TD
    Start([Tier 2 decision]) --> SaleMerger{"Sale, merger,<br/>or dissolution?"}
    SaleMerger -->|Yes| Disclose["📋 Full disclosure required<br/>All side arrangements with<br/>acquirer shared in writing<br/>14 days before any vote"]
    Disclose --> Reserved
    SaleMerger -->|No| Reserved{"Cofounder-only<br/>prerogative?"}

    Reserved -->|"Yes — admitting/removing<br/>Cofounders, C-suite hire<br/>or remove, focus area change"| CofVote
    Reserved -->|No| CSCheck{"C-suite<br/>exists?"}
    CSCheck -->|No| CofVote
    CSCheck -->|Yes| DualVote

    CofVote{"Cofounder gate:<br/>75% of active<br/>Cofounders approve?"}
    DualVote{"Dual gate:<br/>Cofounder ≥75%<br/>AND C-suite >50%?"}

    CofVote -->|Yes| PassT2["✅ Tier 2 passes<br/>→ check Tier 3 below"]
    CofVote -->|No| CofBlock["Cofounder block<br/>→ see Diagram 2b"]

    DualVote -->|Both pass| PassT2
    DualVote -->|Cofounder gate fails| CofBlock
    DualVote -->|C-suite gate fails| CSBlock["C-suite block<br/>→ see Diagram 2c"]

    PassT2 --> NextT3{"Tier 3 also<br/>required?"}
    NextT3 -->|Yes| ToT3["→ Tier 3 must pass<br/>independently<br/>(Diagram 3)"]
    NextT3 -->|No| Done["✅ Decision approved"]

Diagram 2b — Cofounder Block Override (advisory arbiter)

When a Cofounder blocks a Tier 2 decision. Arbiter review is advisory — cofounders have final say via vote.

mermaid

flowchart TD
    Block([Cofounder block]) --> OverrideEligible{"Override eligible?<br/>sale, investment,<br/>new Cofounder,<br/>amending agreement"}
    OverrideEligible -->|No| Fail["❌ Decision fails"]
    OverrideEligible -->|Yes| Process["1. Blocker's written rationale<br/>2. 14-day mediation"]
    Process --> ArbiterCof["3. §10.6 arbiter review<br/>(advisory — informs vote)"]
    ArbiterCof --> ArbiterFind{"Arbiter finds<br/>block is..."}
    ArbiterFind -->|Substantive| SubNote["On the record.<br/>Override still possible."]
    ArbiterFind -->|Obstructive| ObsNote["Supports override.<br/>Documented."]
    SubNote --> Unanimous{"Override vote:<br/>All OTHER Cofounders<br/>N-of-N unanimous?"}
    ObsNote --> Unanimous
    Unanimous -->|No| Fail2["❌ Decision fails"]
    Unanimous -->|Yes| Dissenter["✅ Override succeeds<br/>Dissenter protections apply:<br/>• Full equity payout<br/>• 100% acceleration<br/>• No forced discount"]

Diagram 2c — C-suite Gate Escalation (determinative arbiter)

When C-suite blocks a Tier 2 decision. Arbiter review is determinative — arbiter decides if the block stands.

mermaid

flowchart TD
    CSFail([C-suite gate fails]) --> CSEscalate["1. C-suite written rationale<br/>2. 14-day mediation<br/>3. §10.6 arbiter review"]
    CSEscalate --> ArbiterCSCheck{"Arbiter finds<br/>C-suite block is..."}
    ArbiterCSCheck -->|Substantive| CSBlock["❌ Block stands.<br/>Decision does not proceed.<br/>Cofounders may revise<br/>and restart."]
    ArbiterCSCheck -->|Obstructive| CSOverride["✅ Cofounders proceed<br/>with 75% supermajority only.<br/>Documented + shared<br/>with employee-owners."]

Diagram 3 — Tier 3 Employee-Owner Consent Gate

Runs independently of Tier 2 when the decision affects ownership, compensation framework, or company existence.

mermaid

flowchart TD
    Start([Tier 3 decision]) --> Activation{"Activation check:<br/>does any non-Cofounder,<br/>non-C-suite employee-owner<br/>hold equity?"}
    Activation -->|No| Dormant["Dormant — Tier 3 has no voters.<br/>Decision requires only the<br/>Tier 2 Cofounder gate.<br/>Typical state pre-Phase 2."]
    Activation -->|Yes| Notice["14-day written notice<br/>plus disclosure materials<br/>to full Tier 3 voter class"]

    Notice --> Class["Voter class:<br/>all equity-granted employees<br/>who are not Cofounders<br/>and not C-suite.<br/>Both leadership classes excluded<br/>from numerator and denominator"]
    Class --> Recuse{"Decision directly and<br/>specifically affects an<br/>individual voter's equity,<br/>compensation, or contractual<br/>rights distinct from the class?"}
    Recuse -->|Yes| Recused["Affected voter recuses<br/>removed from numerator<br/>and denominator"]
    Recuse -->|No| Proceed["All class members participate<br/>class-uniform effects<br/>do not trigger recusal"]
    Recused --> Ballot["Secret ballot<br/>one person, one vote<br/>no retaliation, no coercion"]
    Proceed --> Ballot

    Ballot --> Q1{"Quorum at least 75%<br/>of Tier 3 voter class?"}
    Q1 -->|Yes| Tally{"At least 2/3 supermajority<br/>approve?"}
    Q1 -->|No| R1["Reschedule once<br/>plus 7-day extension"]
    R1 --> Q2{"Quorum met?"}
    Q2 -->|Yes| Tally
    Q2 -->|No| R2["Final reschedule<br/>plus 7-day extension<br/>plus active outreach"]
    R2 --> Q3{"Quorum met?"}
    Q3 -->|Yes| Tally
    Q3 -->|No| CofonlyOK["Tier 2 vote alone proceeds<br/>documented and shared;<br/>30-day Tier 3 re-vote<br/>petition window for any<br/>Tier 3 voter"]

    Tally -->|Yes| Pass["✅ Tier 3 passes<br/>results shared within 48 hours<br/>12-month anti-retaliation<br/>protection applies"]
    Tally -->|No| Fail["❌ Fails — no override<br/>proposers may revise<br/>and call a new vote"]

Diagram 4 — Emergency Decisions (§4.5)

Narrow fast-track for genuine emergencies. Cannot bypass Tier 3.

mermaid

flowchart TD
    Start([Situation arises]) --> Qualifies{"Qualifies per §4.5?<br/>• security/data incident<br/>• legal deadline from court/regulator<br/>• critical system failure<br/>• time-bound contractual loss"}
    Qualifies -->|No| NotEmerg["⛔ Use normal governance<br/>Does NOT qualify:<br/>• product launch deadlines<br/>• competitive pressure<br/>• investor/acquirer urgency<br/>• self-created urgency"]
    Qualifies -->|Yes| Tier3Check{"Would this bypass Tier 3?<br/>sale, external investment,<br/>agreement amendment"}
    Tier3Check -->|Yes| NoByPass["❌ No emergency bypass<br/>of Tier 3 — ever.<br/>Answer is 'need more time'<br/>or 'no'."]
    Tier3Check -->|No| Declare["Any Cofounder declares<br/>in writing to all Cofounders:<br/>threat, proposed action,<br/>why normal timelines fail"]
    Declare --> Approve{"Unanimous available<br/>Cofounders approve<br/>within 48 hours?<br/>unresponsive = abstain"}
    Approve -->|No| Fail["❌ Emergency action<br/>not authorized"]
    Approve -->|Yes| Cap{"Within spending cap?<br/>greater of $10K or 5%<br/>of cash reserves,<br/>max $50K ceiling"}
    Cap -->|No| OverCap["❌ Requires full Tier 2<br/>regardless of urgency"]
    Cap -->|Yes| Act["⚡ Emergency action<br/>authorized"]
    Act --> Review["Mandatory 14-day<br/>post-emergency review:<br/>written report to all<br/>Cofounders + shared with<br/>employee-owners"]
    Review --> Genuine{"Was the emergency<br/>genuine, per review?"}
    Genuine -->|Yes| Closed["✅ Closed"]
    Genuine -->|No| Warn["Formal governance warning<br/>to declaring Cofounder.<br/>2 warnings in 12 months →<br/>accountability process §12.4"]

Diagram 5 — For-Cause Removal and the Tier 1 Exception

Tier 1 normally blocks any reduction of a Cofounder's vested equity. The only exception is the for-cause buyback discount (§10.3 + §4.1). This diagram traces that path end-to-end, showing where Tier 1 still protects the Cofounder and where the exception narrowly lifts it.

mermaid

flowchart TD
    Start([Cofounder conduct at issue]) --> Q1{"D5.1 Is conduct a<br/>material breach<br/>per §10.0?"}
    Q1 -->|No| NotBreach["→ §12.4 Accountability Process<br/>not a removal matter"]
    Q1 -->|Yes| Q2{"D5.2 Has §12.4 accountability<br/>process been completed?"}
    Q2 -->|No| MustComplete["🛑 Must complete §12.4 first<br/>cannot skip to removal"]
    Q2 -->|Yes| Q3{"D5.3 Roster check:<br/>how many Cofounders?"}
    Q3 -->|1 Cofounder| Impossible["❌ Removal impossible<br/>no other Cofounders to vote.<br/>Other checks still apply —<br/>see §10.3 edge case"]
    Q3 -->|2 Cofounders| Arbiter["§10.6 arbiter required<br/>as procedural gatekeeper:<br/>confirms §12.4 followed<br/>and grounds substantiated"]
    Q3 -->|3+ Cofounders| Vote1
    Arbiter --> ArbOK{"D5.4 Arbiter confirms<br/>grounds substantiated?"}
    ArbOK -->|No| NoRemoval["❌ Removal does not proceed<br/>Tier 1 fully intact"]
    ArbOK -->|Yes| Vote1{"D5.5 Unanimous OTHER<br/>Cofounders vote to remove?<br/>removed person does not vote"}
    Vote1 -->|No| NoRemoval
    Vote1 -->|Yes| Removed["Cofounder removed<br/>unvested equity forfeited<br/>vested equity → mandatory<br/>buyback §10.4"]
    Removed --> Q4{"D5.6 Separate unanimous<br/>vote to apply for-cause<br/>discount up to 50%?"}
    Q4 -->|No| FullFMV["✅ Full FMV buyback<br/>Tier 1 fully applies"]
    Q4 -->|Yes| Discount["Discount applied —<br/>up to 50% off vested<br/>equity valuation.<br/>Hard floor: 50% of FMV"]
    Discount --> Q5{"D5.7 Removed Cofounder<br/>contests the discount?"}
    Q5 -->|No| Final["✅ Buyback executed at<br/>discounted valuation"]
    Q5 -->|Yes| Dispute["§4.4 dispute resolution<br/>+ §10.6 independent<br/>arbiter review"]
    Dispute --> Q6{"D5.8 Arbiter upholds<br/>the discount?"}
    Q6 -->|Yes| Final
    Q6 -->|Reduced or overturned| Revised["✅ Buyback at arbiter-<br/>determined valuation<br/>(≥50% FMV floor)"]

Legend for Diagram 5:

D5.1 — Material breach (§10.0): Conduct substantial enough to undermine the purpose of this agreement or cause significant harm to the Company, mission, or stakeholders. Not material breach: minor oversight, missed deadline, honest disagreement, good-faith errors, or underperformance addressable through §12.4.
D5.2 — §12.4 accountability process: Documented concern → improvement plan → structured review → escalation. Mandatory precondition; a Cofounder cannot be removed without it having been run first.
D5.3 — Roster check: At 3+ Cofounders, standard unanimous-OTHER-Cofounders vote. At 2 Cofounders, the §10.6 independent arbiter is a required procedural gatekeeper (prevents one person from acting as judge, jury, and beneficiary). At 1 Cofounder, removal through this agreement is structurally impossible — Immutable Rights, Tier 2 C-suite consent, Tier 3 employee-owner consent, and Mission Arbiter review remain as checks.
D5.5 — Removal vote: Unanimous of all other Cofounders. The person being removed does not vote and is not counted in the denominator. This threshold cannot be lowered without amending the agreement (itself a Tier 2 decision).
D5.6 — Discount vote is separate from the removal vote. A removal can succeed without a discount — in which case Tier 1 remains fully intact and the removed Cofounder receives full FMV. The discount only applies if the remaining Cofounders separately and unanimously vote to impose it. This is the only Tier 1 carve-out in the entire agreement.
D5.7 — Contest rights: The removed Cofounder may challenge via §4.4 (dispute resolution) and §10.6 (independent arbiter). The 50% FMV floor is absolute — the arbiter cannot go below it, nor can any unanimous vote.
Unvested equity: Forfeited on any involuntary removal regardless of Tier 1. The cliff-period rounding protection (§5.3, months 7–12 round up to the 1-year cliff) does not apply to for-cause removal for felony, material harm, or material breach — standard cliff rules apply in those cases. It does apply to removal for failure to fulfill role responsibilities (see §5.3 for full carve-out details).

Post-Cofounder era: In the C-suite-only era (Section 10.4), the Tier 2 and emergency diagrams above apply with C-suite replacing Cofounders, 75% supermajority in place of unanimity, and the independent arbiter as a required participant at ≤2 C-suite. Tier 3 is unchanged. Diagram 5 is Cofounder-scoped by default — the for-cause discount provision does not apply to C-suite removal unless the Operating Agreement explicitly adopts it (per §3).

4.1 Protective Provisions

Decisions are split into three tiers plus a constitutional floor:

Off the table — Immutable Rights. Not voteable, not waivable, not negotiable.
Tier 1 — Personal block — One Cofounder can stop it. No override, ever.
Tier 2 — Leadership decisions — three sub-types based on who has a vote:
- Tier 2A — Dual-gate (Cofounders + C-suite): Requires Cofounder 75% supermajority AND C-suite majority (50%+1). Used for major operational and strategic decisions where both leadership classes should have input. This is the standard Tier 2 when C-suite exists.
- Tier 2B — Cofounder-only: Requires Cofounder 75% supermajority. C-suite does not vote. Used for decisions about the Cofounder class itself or C-suite composition (admitting/removing Cofounders, hiring/removing C-suite, changing Cofounder focus areas). Prevents self-dealing — the class being decided on cannot vote on its own composition.
- Tier 2C — C-suite-only (post-Cofounder era): Once all Cofounders have departed (Section 10.4 governance succession), C-suite inherits Tier 2 authority at 75% supermajority — matching the protection level Cofounders previously provided. Tier 2A and 2B collapse into a single Tier 2C gate.
- Pre-C-suite: When no C-suite exists yet, Tier 2A reduces to Cofounder-only (the C-suite gate is inapplicable). Tier 2B is unchanged. The distinction between 2A and 2B only matters once C-suite is hired.
Tier 3 — Outside employee-owner consent — Decisions that affect ownership require a ⅔ supermajority of the Tier 3 voter class (equity-granted employees excluding both Cofounders and C-suite — see Section 3 for the class definition). Tier 3 operates as an independent gate alongside Tier 2 — where both are required, both must pass separately for the decision to proceed. Tier 3 is dormant until the first outside employee-owner holds equity; while dormant, decisions nominally requiring Tier 3 consent require only the Tier 2 gate.

Off the table entirely — not subject to any vote:

The following are protected by the Immutable Rights framework and cannot be changed, weakened, or waived — not by veto, not by vote, not even by unanimous consent of all Cofounders:

Weakening or removing any of the 10 Immutable Rights
Changing the employee-ownership structure (converting to traditional corporate, granting outside voting control)
Selling or monetizing user data
Removing the salary cap, profit sharing equality, or democratic governance

These are not veto items because they are not voteable. They are constitutional. See IMMUTABLE_RIGHTS.md for the full list.

Tier 1 — Block (one Cofounder can stop it, no override):

Any single Cofounder can permanently block these decisions. The other Cofounders cannot override a Tier 1 block under any circumstance:

Changing your own equity split, vesting terms, or vesting schedule
Clawing back or reducing your already-vested equity through governance decisions

Why a block? These directly affect your personal ownership stake — what you've already earned and the terms under which you're earning more. Nobody should be able to change what's yours without your say. If you say no, the answer is no. Period.

Exception — for-cause removal (Section 10.3):

Tier 1 protects against governance-driven equity reduction — the group voting to shrink your stake because of disagreements, underperformance, or wanting a bigger slice. It does not shield a Cofounder from consequences of actions that materially harm the Company. Specifically:

A buyback discount of up to 50% may be applied to vested equity valuation upon for-cause removal (felony conviction, material breach, or actions that materially harm the Company)
This requires unanimous vote of all other Cofounders — the same threshold as removal itself
The departing Cofounder may contest the discount through the dispute resolution process (Section 4.4) and the independent arbiter (Section 10.6)
The discount is capped — a removed Cofounder always receives at least 50% of fair market value for their vested equity

This exception exists because the alternative is perverse: a Cofounder could sabotage the company, get removed for cause, and walk away with full value of what their own actions damaged. The high threshold (unanimous + contestable + capped) prevents abuse while ensuring real consequences for real harm.

No unilateral vesting changes: A Cofounder's vesting rate cannot be changed by the other Cofounders without consent. If contribution levels drift, the accountability process (Section 12.4) is the path — not a forced vesting adjustment.

Tier 2 — Override (one Cofounder can block it, but all other Cofounders (N-of-N) can override after mediation):

Any Cofounder can initially block these decisions. However, if all other Cofounders (N-of-N, where N is the number of non-blocking Cofounders) unanimously agree after a mandatory mediation process, they can override the block:

Selling, dissolving, or merging the Company
Accepting external investment or incurring debt over $5,000
Admitting new Cofounders (Section 5.4)
Amending this agreement (Section 13)

Why an override? One person holding the company hostage on collective decisions — blocking a life-changing acquisition, refusing all investment while the company runs out of cash — can be just as destructive as a majority railroading a minority. The override exists as a last resort. Think of it like the pirate crew voting to replace a captain who's steering toward rocks — you need everyone else to agree, and you have to try talking first.

Override process (mandatory — cannot be skipped):

Blocking Cofounder explains reasoning in writing
14-day mediation period — all Cofounders must participate in good-faith discussion to address concerns
Arbiter review: If mediation does not resolve the disagreement, either side (blocking Cofounder or proposing Cofounders) may request the independent arbiter (Section 10.6) to review the dispute. The arbiter assesses whether the block is substantive (based on legitimate concerns — financial risk, mission misalignment, inadequate valuation, timing concerns) or obstructive (blocking without documented reasoning, blocking for personal leverage, or refusing to engage in good faith). The arbiter's assessment is advisory and documented — it informs the override vote but does not replace it.
If the arbiter finds the block substantive, the override vote may still proceed, but the arbiter's finding is shared with all Cofounders (and employee-owners if Tier 3 applies) as part of the decision record. Overriding a substantive block carries reputational and governance weight — it's on the record.
If the arbiter finds the block obstructive, this finding supports the override and is documented.
Override vote: Requires unanimous agreement of all other Cofounders (N-of-N, where N is the number of non-blocking Cofounders) — this is not a simple majority. The arbiter finding (substantive or obstructive) does not change the unanimity threshold.
Override decision must be documented in writing with rationale, the arbiter's finding, and how the blocking Cofounder's concerns were addressed or why they were overridden despite being substantive.

Why arbiter review for cofounders too? The same principle that applies to C-suite applies here: no block should go unchecked. The arbiter provides an independent assessment that protects both sides — the blocking Cofounder gets validation if their concerns are legitimate, and the proposing Cofounders get an independent finding if the block is obstructive. The arbiter doesn't decide the outcome — the Cofounders still vote — but the arbiter's assessment becomes part of the permanent record, creating accountability for both blocking and overriding.

Edge case — 2 Cofounders:

At 2 Cofounders, the override mechanism collapses: "all OTHER Cofounders (N-of-N unanimous)" is just the proposing Cofounder voting for their own proposal. This makes the advisory arbiter meaningless — one person will always "unanimously" approve their own idea.

To prevent this, the arbiter becomes determinative (not advisory) when only 2 Cofounders remain:

Steps 1–3 proceed as normal (written rationale, 14-day mediation, arbiter review)
The arbiter assesses whether the block is substantive or obstructive — same standard as above
If substantive: The block stands. The decision does not proceed. The proposing Cofounder may revise and restart.
If obstructive: The proposing Cofounder may proceed. The arbiter's finding is documented and shared with all employee-owners.
If the arbiter cannot clearly determine substantive vs. obstructive: The block stands by default. Ambiguity favors the status quo at 2 Cofounders — proceeding over objection with no independent check is too risky.

This mirrors the 2-Cofounder removal logic in Section 10.3, where the arbiter is already a required procedural gatekeeper. The principle is the same: at 2 Cofounders, peer governance breaks down and an independent third party must fill the structural gap.

Full disclosure requirement (mandatory for any sale, merger, or dissolution):

Before any vote on a sale, merger, acquisition, or dissolution — whether Tier 2 override or otherwise — all Cofounders must fully disclose any and all side arrangements with the acquiring party or any related entity. This includes but is not limited to:

Retention bonuses or stay packages
Employment offers, advisory roles, or consulting agreements
Equity, options, or profit-sharing in the acquiring company
Non-compete buyouts or severance packages
Any other financial arrangement that could create a personal incentive to accept a lower sale price

Disclosures must be in writing and shared with all Cofounders at least 14 days before any vote. Where a Tier 3 employee-owner vote is also required, disclosures must be shared with all employee-owners on the same timeline. Failure to disclose constitutes a material breach of this agreement, entitling any affected party to pursue legal remedies including equitable relief, damages, and rescission of the transaction if not yet closed.

Employee-owner consent (Tier 3 gate):

Sale, merger, dissolution, and external investment decisions also require Tier 3 employee-owner consent (⅔ supermajority). The Tier 2 cofounder process and Tier 3 employee-owner vote are independent gates — both must pass. See Tier 3 below for full details.

Dissenting Cofounder protections (when a Tier 2 block is overridden):

If your block on a company sale, merger, or dissolution is overridden and the Tier 3 employee-owner consent threshold is met, you are not left without recourse:

Full equity payout: Your vested equity is paid out at the sale price — same terms as every other Cofounder. You cannot be disadvantaged on price.
Acceleration applies: Full acceleration kicks in per Section 5.2 — 100% of your unvested equity vests at close, same as every other Cofounder.
No forced discount: A dissenting Cofounder's payout cannot be reduced or penalized for having blocked. Dissent is a right, not a cause for punishment.

Note on Cofounder removal: Removal is its own process, separate from the veto/block system. The person being removed does not vote — it requires unanimous agreement of all other Cofounders (Section 10.3), and the accountability process (Section 12.4) must be completed first. The unanimity threshold for removal cannot be lowered without amending this agreement (which is a Tier 2 decision).

Minority Cofounder protections:

A 75% supermajority coalition can control all Tier 2 decisions, hire/remove C-suite, and admit new cofounders. The minority Cofounder retains Tier 1 protections (their equity is untouchable) but risks losing all practical governance influence. The following protections ensure a minority Cofounder remains a meaningful participant, not a cofounder in name only:

Information rights: Every Cofounder — regardless of voting power — has the right to full access to all Company financial records, legal documents, contracts, board communications, and governance decisions. No Cofounder may be excluded from information access. Restricting a Cofounder's information access is a material breach of this agreement.
Meeting participation: Every Cofounder has the right to attend and participate in all governance discussions, meetings, and deliberations — even those where they will be outvoted. Decisions made in meetings from which a Cofounder was excluded (without documented voluntary absence) are voidable.
Written objection right: A minority Cofounder who is outvoted on a Tier 2 decision may submit a written objection that must be included in the permanent decision record and shared with all employee-owners. This ensures dissent is on the record and visible to Tier 3 voters, who may factor it into their own vote.
Arbiter review for pattern of exclusion: If a Cofounder can document a pattern of systematic exclusion from governance (consistently excluded from discussions, information withheld, decisions made without notice), they may request the independent arbiter (Section 10.6) to review the pattern. If the arbiter finds systematic exclusion, it constitutes a governance failure that must be remedied within 30 days — failure to remedy is treated as material breach.
New cofounder admission check: Admitting new Cofounders is Tier 2 (override-eligible). However, if a new cofounder admission would change the outcome of any pending or in-process Tier 2 decision (i.e., the new cofounder's vote would flip a previously blocked proposal), the admission and the pending decision must be treated as separate votes with a 30-day gap between them. This prevents "stack the deck, then vote" as a single coordinated action.

Tier 3 — Outside Employee-Owner Consent (⅔ supermajority of non-Cofounder, non-C-suite employee-owners):

Outside employee-owners — those who hold equity but are neither Cofounders nor C-suite — hold an independent governance voice separate from the Cofounder Tier 2 gate and the C-suite Tier 2 gate. Decisions that directly affect employee-owner ownership, compensation, or the Company's existence require their consent — not just Cofounder + C-suite approval.

Principle: If a decision changes the value, structure, or terms of what employee-owners own, the outside employee-owner class gets an independent vote. If it's operational or strategic execution, Cofounders (and, at Tier 2, C-suite) handle it.

Tier 3 voter class — who votes:

Tier 3 is an independent outside-employee check that sits alongside Tier 2. To function as a genuinely independent check on both cofounder and operational leadership, the Tier 3 roster excludes both Cofounders and C-suite — Cofounders already have governance voice through Tier 1 (individual veto) and the Tier 2 Cofounder gate, and C-suite has governance voice through the Tier 2 C-suite gate (Section 4.2). Neither should vote a second time on the same decision. The Tier 3 voter class is:

All equity-granted employees who are not Cofounders and not C-suite members.

Neither Cofounders nor C-suite vote at Tier 3. Cofounders' governance voice is Tier 1 plus the Tier 2 Cofounder gate; C-suite's voice is the Tier 2 C-suite gate. Tier 3 is reserved as the independent voice of the outside employee-owner class — the structural check that prevents leadership-only decisions on ownership-and-existence matters once that class exists.

Activation rule: Tier 3 is dormant when no non-Cofounder, non-C-suite employee-owner holds equity. While dormant, decisions that would nominally require Tier 3 consent require only the Tier 2 Cofounder gate — there is no outside-employee class to consent yet. Tier 3 activates automatically the moment the first outside employee-owner is granted equity (typically but not necessarily at Phase 2), and runs as an independent ⅔ gate alongside Tier 2 thereafter. See Section 3 — Effect on governance gates for the parallel explanation.

Mandatory activation backstop: Tier 3 dormancy cannot persist indefinitely. To prevent cofounders from permanently avoiding the employee-owner check by never granting equity to non-C-suite employees:

Revenue trigger: Once the Company has maintained $100K+ MRR for 12 consecutive months (i.e., 12 months into Phase 2), at least one non-Cofounder, non-C-suite employee must hold equity — either through the employee pool (Section 5.7) or via promotion to C-suite with equity grant (Section 5.8). If no such grant has been made by this deadline, the Cofounders must initiate an equity grant process within 90 days using the employee pool. Failure to do so is a governance failure that any employee may raise through the accountability process.
Headcount trigger: Once the Company has 10 or more total employees (including Cofounders and C-suite), the same obligation applies — at least one non-leadership employee must hold equity within 12 months.
This does not dictate who receives equity or how much — those decisions follow existing processes (Section 5.7, Operating Agreement). It only ensures that the outside-employee check is not permanently deferred by leadership inaction.

Decisions requiring Tier 3 consent (⅔ supermajority):

These decisions require a ⅔ supermajority of the Tier 3 voter class defined above. Where a decision also requires Tier 2 approval, both gates must pass independently:

Sale, merger, acquisition, or dissolution of the Company (also requires Tier 2)
Accepting external investment that would dilute employee equity (also requires Tier 2)
Amending this agreement in ways that affect employee-owner rights, equity structure, or compensation framework (also requires Tier 2)
Changes to the living wage floor (annual Q3 review — see Section 6.4)

Decisions requiring employee-owner advisory vote:

These decisions affect the company structure but are ultimately cofounder governance decisions. Employee-owners vote, and the result is on record and must be acknowledged in writing, but does not block the decision:

Admitting new Cofounders (Tier 2 cofounder decision — employee advisory vote ensures transparency)

Tier 3 voting procedures:

Notice: Employee-owners receive written notice of the decision, all relevant context, and any disclosure materials at least 14 days before the vote
Secret ballot: All employee-owner votes are conducted by secret ballot to prevent coercion or social pressure
One person, one vote: Voting power is per person, not weighted by equity percentage (consistent with Immutable Right #2 — democratic governance)
Quorum: A vote requires participation from at least 75% of the Tier 3 voter class (defined above — all equity-granted employees who are not Cofounders and not C-suite; both Cofounders and C-suite are excluded from both the numerator and the denominator) to be valid. If quorum is not met, the vote is rescheduled once with a 7-day extension. If quorum is still not met on the second attempt, the vote is rescheduled a third and final time with a further 7-day extension and active outreach to non-participating Tier 3 voters. If quorum is still not met on the third attempt, the decision proceeds with only the Tier 2 vote — but the result must be documented and shared with all employee-owners (including C-suite, for transparency), and any member of the Tier 3 voter class may petition for a re-vote within 30 days if they can demonstrate they were not adequately notified or that circumstances prevented participation. Cofounders and C-suite members, who do not vote at Tier 3, may not initiate a Tier 3 re-vote petition; their governance voice on the underlying decision is their respective Tier 2 gate (Section 4.2). This safeguard prevents leadership-only decisions from proceeding due to engineered or negligent low turnout.
Documentation: Results are recorded and shared with all employee-owners within 48 hours of the vote
Anti-retaliation: No Cofounder or manager may take adverse action against any employee-owner based on how they voted, how they are suspected of voting, or whether they participated in a vote. Adverse action includes but is not limited to: termination, demotion, reassignment, exclusion from projects or decisions, reduction in responsibilities, hostile or retaliatory behavior, or any action that a reasonable person would consider punitive. Retaliation for voting constitutes a material breach of this agreement. The protection extends for 12 months following the vote. Any employee-owner who believes they have experienced retaliation may file a complaint through the accountability review process (Section 12.4), including the employee-initiated petition path.
Anti-coercion: No Cofounder or manager may attempt to influence an employee-owner's vote through promises (promotions, raises, favorable assignments) or threats (implicit or explicit). Pre-vote discussion and advocacy for a position is encouraged — that's healthy deliberation. The line is crossed when the discussion becomes conditional on how someone votes. Coercion is treated as a conflict-of-interest violation (Section 12.2).
Recusal for direct personal effect: A Tier 3 voter recuses from any Tier 3 vote that directly and specifically affects that voter's individual equity, compensation, or contractual rights in a way distinct from the effect on the voter's class generally (mirroring the promotion recusal rule in Section 5.8). Recused voters are not counted in the denominator for that vote. Votes affecting a class uniformly — e.g., living wage floor adjustments, general profit-sharing formula changes, class-wide vesting or buyback terms — do not trigger recusal, because every voter is affected in the same way. Conflicts of interest that do not rise to direct personal effect are governed by Section 12.2 and are not a basis for Tier 3 recusal.

4.2 Major Decisions (Tier 2 — Dual-Gate Supermajority)

Decisions that are significant but not existential require Tier 2 supermajority. This prevents deadlock while still requiring broad agreement among the leadership holding operational authority.

Dual-gate structure: Once C-suite exists, Tier 2 passes only if both gates are met:

Cofounder gate — 75% supermajority of all active Cofounders (rounded up)
C-suite gate — majority (50% + 1) of all active C-suite members, if any exist. If no C-suite exists, this gate is inapplicable and only the Cofounder gate applies.

The asymmetry is intentional: Cofounders retain primary decision-making authority (higher threshold), C-suite has meaningful check but not absolute veto (majority threshold). As the team composition shifts over time, the balance shifts gracefully without a cliff:

Pre-C-suite (founding team only): Cofounder gate only — 75% of Cofounders.
Both present (typical Phase 2 through late-stage): Both gates must pass. A single gate failing blocks the decision, subject to the C-suite gate escalation process below.
Post-Cofounder (all Cofounders have departed): Cofounder gate is inapplicable (zero voters) and only the C-suite gate applies — but the threshold rises to 75% supermajority of active C-suite to match the level of protection Cofounders previously provided (see Section 10.4 governance succession).

C-suite gate failure — escalation path:

If the C-suite gate fails (C-suite majority does not approve), the decision does not automatically die. This mirrors the logic behind cofounder block overrides: if a cofounder block can be overridden through mediation + unanimous other cofounders, a C-suite block should not be more powerful than a cofounder block. The escalation path is:

Written rationale: C-suite members who voted against explain their reasoning in writing, shared with all Cofounders
14-day mediation period: Cofounders and C-suite must participate in good-faith discussion to address concerns. This is not a formality — the goal is genuine resolution. C-suite may raise legitimate operational concerns (resource constraints, timing, implementation risk) that Cofounders should take seriously.
Arbiter review: If mediation does not resolve the disagreement, Cofounders may request the independent arbiter (Section 10.6) to review whether the C-suite block is substantive (based on legitimate operational, financial, or mission concerns) or obstructive (blocking without documented reasoning, blocking for self-interest, or blocking to accumulate leverage on an unrelated matter).
Arbiter determination:
- If substantive: The C-suite block stands. The decision does not proceed. Cofounders may revise the proposal and restart the process.
- If obstructive: Cofounders may proceed with the decision using Cofounder supermajority only (75%). The arbiter's finding of obstruction is documented and shared with all employee-owners.
Documentation: The entire escalation — rationale, mediation, arbiter review, and outcome — must be documented in writing.

Why not an absolute C-suite veto? Cofounders hold primary governance authority. C-suite are hired by Cofounders and serve at Cofounder pleasure (Section 3). Giving C-suite an absolute veto with no recourse would create a scenario where hired executives could paralyze the founders who hired them — the inverse of the checks-and-balances model. The escalation ensures C-suite's concerns are heard and seriously evaluated (via arbiter), but prevents C-suite from holding the company hostage.

When escalation is NOT available: The C-suite gate escalation does not apply to decisions where C-suite is the subject — specifically, C-suite removal is a Cofounder-only prerogative (see Cofounder-only prerogatives below) and does not pass through the C-suite gate at all.

Decisions covered by Tier 2 dual-gate:

Pivoting the core product direction
Entering binding contracts on behalf of the Company
Hiring decisions (pre-incorporation)
Approving expenses over $5,000 (that don't create debt)
Setting or changing compensation terms (post-revenue), subject to living wage floor constraints (Section 6.4)

Cofounder-only prerogatives (C-suite gate does not apply):

Some Tier 2 decisions are reserved to Cofounders alone — the C-suite gate is not opened for them, because the decision concerns the Cofounder class itself and would create a self-dealing problem if C-suite could vote:

Admitting new Cofounders (Section 5.4) — Cofounders choose their own peers
Removing a Cofounder (Section 10.3) — Cofounders police each other
C-suite hiring and C-suite removal (Section 3) — the class being hired or removed cannot vote on its own composition
Changing a Cofounder's focus area or responsibilities — internal Cofounder arrangement

These remain 75% Cofounder supermajority only for as long as Cofounders exist. Upon full governance succession to C-suite, the surviving analogues (admitting new C-suite, removing C-suite) are governed by the Operating Agreement under the principles in Section 3 and Section 10.4.

4.3 Operational Decisions (Delegated)

Day-to-day decisions are delegated to each Cofounder and C-suite member within their respective domains. This is where speed matters — like a pirate captain in battle:

Decisions within each Cofounder's focus area (Section 3)
Decisions within each C-suite member's operational domain (once C-suite exists)
Spending under $500 (with documentation)
Implementation choices within a leader's area of expertise
Routine communications with merchants, users, or partners

Who has delegated authority: Both Cofounders and C-suite members operate with delegated authority in their respective areas. A CTO makes day-to-day technical decisions. A COO makes operational decisions. A Cofounder leading growth makes growth decisions. The principle is the same regardless of title class — the person closest to the work makes the call, and is accountable for it.

Accountability: Any Cofounder or C-suite member can call a review of a delegated decision. If 2+ members of the leadership team (Cofounders and/or C-suite) raise concern, the decision is escalated to a Tier 2A vote.

Anti-abuse: Escalation is a check, not a weapon. If a pattern of escalation emerges against the same person's domain — 5 or more escalations in a 90-day period targeting the same leader's area — the targeted person may raise the pattern as a governance concern. If the pattern is found to be obstructive (designed to undermine delegated authority rather than address legitimate concerns), the escalating parties receive a formal governance warning. Two warnings in 12 months triggers the accountability process (Section 12.4). Escalation rationale must be documented in writing each time it is invoked.

4.4 Dispute Resolution

If Cofounders cannot reach agreement:

Deadlock (even split — e.g., 3-3 at six Cofounders):

Table the decision for 7 days with further research/discussion
Re-vote after the cooling period
If still deadlocked, seek external mediation from a mutually agreed advisor

For Tier 1 (block): The block stands. No override. The proposing Cofounders may:

Revise the proposal to address the blocking Cofounder's concerns
Seek mediation to find common ground
Accept the block — these decisions cannot happen without the affected person's consent

For Tier 2 — Cofounder block (override): Follow the override process in Section 4.1 (written rationale → 14-day mediation → §10.6 arbiter review (advisory) → N-of-N unanimous override vote of all other Cofounders if unresolved)

For Tier 2 — C-suite gate failure (escalation): Follow the C-suite gate escalation process in Section 4.2 (C-suite written rationale → 14-day mediation → §10.6 arbiter review → substantive block stands / obstructive block overridden by Cofounder supermajority)

Cost of mediation and arbitration: When any dispute resolution process requires a paid third party (mediator, arbitrator, or advisor), the cost is split equally between the disputing parties. If it's one Cofounder vs. the rest, it's 50/50 — not 25/75. Pre-revenue, each side covers their share personally. Post-revenue, the Company pays as an operating expense. If a mediator or arbitrator determines one party acted in bad faith, the bad-faith party pays 100% of costs.

For Tier 3 (employee-owner consent): If the ⅔ employee-owner vote fails, the decision does not proceed — there is no override mechanism for Tier 3. The proposing Cofounders may revise the proposal and call a new vote, but cannot bypass or override the result.

Disputes about whether Tier 3 applies: If Cofounders disagree on whether a decision triggers Tier 3 employee-owner consent, the default is that the vote is required. Any single Cofounder may invoke the Tier 3 requirement. The threshold to skip a Tier 3 vote is unanimous Cofounder agreement that the decision does not affect equity, compensation, or company existence.

The guiding test: Tier 3 applies when a decision changes the rules themselves — the compensation structure, equity terms, or company existence — for all or a class of employee-owners. It does not apply when existing rules are applied to an individual case (e.g., individual performance management, role changes, hiring, or enforcement of documented policies).

📌 Note: Detailed Tier 3 dispute resolution procedures, categorical exclusions, and edge-case guidance will be formalized in the Company's Operating Agreement upon incorporation.

4.5 Emergency Decisions

Normal governance timelines (14-day notice, mediation periods) exist for good reason — they prevent rushed decisions on matters that affect everyone's ownership and livelihood. But genuine emergencies exist, and a governance framework that can't act quickly when the ship is under fire is a liability.

What qualifies as an emergency:

An emergency is a situation where delay would cause irreversible harm to the Company, its users, or its employees. Specifically:

Security breach or data incident requiring immediate expenditure or technical response
Legal deadline imposed by a court, regulator, or government body with a compliance window shorter than normal governance timelines
Critical system failure that threatens user safety or data integrity
Time-bound contractual obligation where failure to act within the window would result in material financial loss or legal liability

What does NOT qualify:

Product launch deadlines
Competitive pressure ("if we don't act now, someone else will")
Investor or acquirer-imposed urgency ("the offer expires Friday")
Any situation where the urgency is created by a Cofounder's or C-suite member's own delay or failure to plan

Emergency process:

Any Cofounder or C-suite member may declare an emergency in writing (message to all Cofounders and C-suite) with a clear description of the threat, the proposed action, and why normal timelines are insufficient. C-suite members can and should declare emergencies in their domain — a CTO discovering a security breach at 2am should not have to wait for a Cofounder to wake up.
Approval: Requires unanimous available Cofounders within 48 hours. If C-suite exists, C-suite members are notified and consulted but Cofounder approval is the gate. "Available" means reachable — a Cofounder who is unresponsive for 48 hours after documented attempts to reach them is counted as abstaining, not blocking. If a C-suite member declared the emergency, they may take immediate protective action within their domain (e.g., shut down a compromised system, engage incident response) before Cofounder approval, provided the action is defensive and reversible. Proactive or irreversible actions (spending, contracts, public statements) require Cofounder approval.
Spending cap (per incident): Each emergency decision is capped at the greater of $10,000 or 5% of current cash reserves (but not to exceed $50,000) without triggering normal Tier 2 approval. Pre-revenue, the effective cap is $10,000. As the Company grows, the cap scales with reserves but is always bounded by the $50,000 ceiling — anything beyond that requires full governance process regardless of urgency
- Aggregate quarterly cap: Total emergency spending across all emergency declarations in a rolling 90-day period may not exceed $75,000 (or 10% of cash reserves, whichever is lower). If the aggregate cap would be exceeded, the proposed emergency action requires full Tier 2 approval regardless of individual-incident size. This prevents serial small emergencies from cumulatively bypassing governance.
- Frequency flag: If 3 or more emergency declarations are made within any 90-day period, all Cofounders must conduct a governance review to assess whether the emergency process is being used appropriately. Two or more Cofounders may refer the pattern to the accountability process (Section 12.4) if they believe the declarations are not genuine.
No Tier 3 bypass: Emergency powers cannot be used to bypass employee-owner consent on Tier 3 decisions (sale, investment, agreement amendments). There is no emergency sale. If an acquisition offer has a 48-hour deadline, the answer is "we need more time" or "no." Any acquirer unwilling to respect the governance process is not a partner aligned with Lantern's values.

Post-Cofounder era (parallel process):

Once all Cofounders have departed and C-suite has inherited operational governance (Section 10.4 governance succession), the same emergency process applies with C-suite in place of Cofounders, on these terms:

Declaration: Any active C-suite member may declare an emergency in writing to all other C-suite members, using the same threshold and exclusion criteria above.
Approval threshold: Because unanimity of C-suite would be an easier bar than Cofounder unanimity was (C-suite counts are typically larger and more variable), approval requires a 75% supermajority of available C-suite members within 48 hours — mirroring the post-Cofounder Tier 2 threshold in Section 4.2. "Available" follows the same reachability standard as the Cofounder process.
Spending cap: Same caps apply ($10,000 or 5% of reserves, to a $50,000 ceiling).
No Tier 3 bypass: The Tier 3 employee-owner consent requirement continues to apply unchanged. Emergency powers cannot bypass Tier 3 in any era.
If fewer than 3 C-suite remain: The "checks break down" logic in Section 4.2 applies — at 2 C-suite, supermajority rounds up to both and the independent arbiter (Section 10.6) is a required procedural participant in any emergency declaration; at 1 C-suite, emergency powers are suspended until a second C-suite member is seated or the governance is rebuilt per Section 10.4.
Post-emergency review: The 14-day review obligation below applies identically, with reports shared to all employee-owners.

Post-emergency review (mandatory):

Every emergency decision must be reviewed within 14 days of resolution:

Full written report shared with all Cofounders: what happened, what was decided, what it cost, and what the outcome was
If the review determines the emergency was not genuine (i.e., normal governance could have been followed without material harm), the declaring Cofounder receives a formal governance warning. Two warnings within 12 months triggers the accountability process (Section 12.4).
The review is documented and shared with employee-owners as part of ongoing financial transparency obligations (Section 11.4)

Why this is narrow: Every governance shortcut is a potential abuse vector. The Uber problem didn't start with a dramatic power grab — it started with small "emergency" decisions that gradually normalized bypassing checks. The narrow scope, spending cap, mandatory review, and explicit exclusion of Tier 3 decisions ensure this remains a fire extinguisher, not a back door.

Understanding the Distinction

Lantern intentionally decouples equity ownership from profit sharing:

Equity (ownership %) represents a Cofounder's or employee's ownership stake in the company. Equity percentages may differ between individuals. Equity determines value received in a liquidation event (company sale, dissolution, or acquisition) and is subject to dilution from future funding rounds. All equity percentages in this Agreement are stated on a fully-diluted basis — i.e., as a share of the total authorized equity of the Company, including the Cofounder Reserve (Section 5.5), the Employee Pool (Section 5.7), and any unvested equity. A "12% stake" therefore means 12% of the fully-diluted cap table, not 12% of currently-issued shares.
Profit sharing is how distributable profits are divided among all employee-owners. Per Immutable Right #4, profit sharing is always equal — every employee-owner receives the same share, regardless of their equity percentage, role, title, or tenure. This cannot be changed (see IMMUTABLE_RIGHTS.md). Example: A founding Cofounder with 20% equity, a later-admitted Cofounder with 5% equity (see Section 5.4 — new cofounders do not automatically receive the same percentage as original founders), and a future employee-owner with 0.5% equity all receive the exact same profit distribution. Equity % does not affect profit sharing.

When equity % matters:

Company sale or acquisition (proceeds distributed by equity %)
Company dissolution (remaining assets distributed by equity %)
Fundraising dilution math

When equity % does NOT matter:

Profit distributions (always equal)
Salary (equal base pay among cofounders)
Voting power (one person, one vote — Immutable Right #2)
Day-to-day decision-making authority

5.0 Foundation Phase

The Foundation Phase is the period during which the six founding Cofounder slots (Section 1) are being filled at the founding-equity rate of 12% each. It establishes who counts as a "founding Cofounder" versus a "new Cofounder" for the purposes of every other section of this agreement (especially Section 5.4 and Section 5.5).

Close of the Foundation Phase:

The Foundation Phase closes on the earlier of:

All six founding slots filled — each of the six Cofounders has signed this agreement and begun vesting, OR
Formal incorporation of the Company

Once closed, the Foundation Phase cannot be reopened. The distinction between "founding Cofounder" and "later-admitted Cofounder" is permanent.

What happens after the Foundation Phase closes:

Any new Cofounder is admitted under Section 5.4 at a smaller stake (recommended range 3–10%) drawn from the cofounder reserve, the employee pool, or equal dilution
Unfilled founding slots are forfeited. If fewer than six Cofounders have signed at the moment of close, the remaining slot's equity (12%) rolls into the cofounder reserve — it does not remain available as a "founding rate" offer
A departed founding Cofounder's slot does not reopen. Their vested equity is bought back under Section 10.4 and returns to the employee pool per that section's rules; the founding team shrinks permanently

Practical implication — sequencing matters:

If the Company incorporates before all six founding slots are filled, any Cofounder joining after incorporation joins at the smaller (3–10%) rate — not the founding 12%. To preserve the founding rate for an expected cofounder (e.g., a reserved role), complete the signing of all six founding Cofounders before filing formal incorporation documents.

Why this distinction matters: The founding rate reflects the risk and sweat equity of building Lantern before the product, team, and traction existed. A cofounder joining once more of the company is established takes on a different risk profile, and their equity reflects that difference. Profit sharing remains equal regardless (Immutable Right #4).

5.1 Founding Equity Split — Equal Among Cofounders

All six founding Cofounders receive an equal share of founding equity. This reflects Lantern's core belief that every cofounder's contribution is equally valuable, regardless of role or focus area.

Allocation	Equity (%)	Notes
Cofounder 1	12%
Cofounder 2	12%
Cofounder 3	12%
Cofounder 4	12%
Cofounder 5	12%
Cofounder 6	12%
Cofounder Reserve	13%	Reserved for future cofounders (see Section 5.5)
Employee Pool	15%	Reserved for future hires
Total	100%	Fully-diluted cap table

Fully-diluted basis. All percentages above — and throughout this Agreement — refer to the fully-diluted cap table. The 72% held by the six founding Cofounders is 72% of the fully-diluted total, not 72% of issued shares. The 13% Cofounder Reserve (Section 5.5) and the 15% Employee Pool (Section 5.7) are unissued equity reserved on the cap table — they belong to no one until granted. On incorporation, the Company authorizes 100 units (or a scaled multiple) of equity, issues 72 units (12 per founding Cofounder), and leaves 28 units unissued in the Reserve and Pool.

Equal share formula: (100% − Employee Pool % − Cofounder Reserve %) ÷ 6 = 12% per founding Cofounder

Why the 13% cofounder reserve is intentionally sized:

The reserve anticipates future cofounders joining at smaller stakes (typically 3–10% each, per Section 5.4). Cofounders who join after the founding six accept a different risk profile — they arrive once more of the product, team, and traction are established, so their equity reflects that difference. The reserve covers roughly 1–4 additional cofounders at smaller grants before any dilution of the founding six is required.

Profit sharing is unaffected by equity %. Per Immutable Right #4, all employee-owners — founding Cofounders, later Cofounders, and every employee granted equity — receive an equal share of distributable profit regardless of their equity percentage. Equity % determines outcome in a liquidation event; profit sharing determines ongoing cash compensation. See "Understanding the Distinction" above.

Total must equal 100%. The percentages above are the defaults. If the cofounder reserve or employee pool are adjusted before signing, each founding Cofounder's share adjusts proportionally so the six remain at equal stakes. The combined cofounder reserve + employee pool may not exceed 40% without unanimous consent — this preserves a minimum founding Cofounder share of 10% each. Any adjustment must be finalized and documented before signing this agreement.

5.2 Vesting Schedule

All Cofounder equity is subject to vesting:

Vesting period: 4 years
Cliff: 1 year (no equity vests until 12 months of continuous commitment)
Post-cliff vesting: Monthly over remaining 36 months
What happens to your equity when Lantern is acquired:
First, the intent: Lantern is built to remain a 100% employee-owned company indefinitely. A sale is not a goal — it is not planned for, not assumed, and not encouraged. The clauses below exist purely as a protective fallback in the event a sale ever happens, not as an invitation to pursue one.
The framing: When a company is acquired, cofounders don't keep owning shares — they get paid out. The acquirer buys the company, all shareholders receive their cut of the purchase price, and that's it. The question isn't "who owns shares after?" — it's "how much of the purchase price do I receive?"
Vesting determines that payout. Without any protection, an acquirer could buy the company, fire you the next day, and you'd only get paid for whatever happened to be vested at that moment. The clause below prevents that entirely.
Full acceleration on acquisition: If Lantern is ever acquired, 100% of every Cofounder's unvested equity vests immediately at the moment the acquisition closes. Every Cofounder is paid out their full equity percentage — vested and unvested — at the acquisition price. No exceptions, no partial amounts.
Example: The company sells for $10M. You hold 25% total equity but are only 2 years into a 4-year vest. Without this clause, you'd receive $1.25M (vested only). With full acceleration, you receive your full 25% = $2.5M.
The reasoning is simple: vesting exists to protect the company from a cofounder who leaves early without earning their equity. If the company is sold, everyone stayed and built something worth buying. The purpose of vesting is complete. There is no justification for any cofounder to receive less than their full equity at that point.

Vesting start date — recorded individually per Cofounder:

Each Cofounder's vesting clock starts on their own vesting start date, recorded next to their signature in the Signatures section. A single shared date is intentionally avoided: the six founding Cofounders may sign over a period of weeks or months, and a shared anchor would either shorten the vest of late-signers or extend the vest of early-signers unfairly.

Recommended per-Cofounder start date: Date that Cofounder signs this agreement OR date of their first material contribution to Lantern, whichever is earlier. The chosen date must be specific (e.g., "March 1, 2026"), documented next to that Cofounder's signature, and acknowledged by all other Cofounders at signing.

📌 Why this date matters: Each Cofounder's vesting start date is the anchor for all time-based protections in this agreement as applied to that Cofounder. The cliff period (months 0–12), cliff protection window (months 7–12, Section 5.3), and the 4-year vesting schedule all count from each Cofounder's individual start date. An ambiguous or undocumented start date creates disputes about whether a departing Cofounder has passed the cliff. Each Cofounder must fill in their own specific start date before signing — leaving it blank is not permitted.

⚠️ Tax Notice — 83(b) Election: If equity is granted as restricted stock (subject to vesting), each Cofounder should consult a tax advisor about filing an IRS Section 83(b) election within 30 days of the equity grant date. An 83(b) election allows you to pay income tax on the value of the stock at the time of grant (likely near $0 for a pre-revenue startup) rather than at each vesting milestone when the stock may be worth significantly more. This is a 30-day deadline with no extensions — missing it cannot be undone. This agreement does not constitute tax advice; each Cofounder is responsible for their own tax planning and filings.

⚠️ Tax Notice — Profit Sharing & Promissory Notes: Profit sharing distributions (Section 6.1) are taxable income in the year received. Buyback promissory notes (Section 10.4) may have tax implications at the time of issuance (not just at payment) depending on the structure chosen at incorporation. Each Cofounder should consult a tax advisor before the profit sharing trigger is met and before any departure triggers a buyback.

5.3 Unvested Equity on Departure

If a Cofounder departs (voluntarily or involuntarily) before full vesting:

Vested equity: Subject to mandatory buyback (Section 10.4) — departing Cofounder receives fair value
Unvested equity: Forfeited and returned to the company pool
During cliff period — voluntary departure: Departing Cofounder receives no equity
During cliff period — involuntary removal: See cliff protection below

Cliff Protection (Involuntary Removal Only — Months 7–12):

If a Cofounder is removed by the other Cofounders (Section 10.3) during months 7–12 of the cliff period, vesting rounds up to the 1-year cliff. The removed Cofounder is treated as though they reached the cliff and receives 25% of their total equity grant, subject to mandatory buyback.

This protection exists because the cliff can be weaponized — three cofounders could theoretically align to push someone out at month 11 to avoid owing them equity. The roundup ensures that a cofounder who has committed significant time (7+ months) is not stripped of all value through strategic timing.

Months 0–6: No equity vests and no payout. The cliff is the cliff — everyone agrees to this risk when they sign. If things aren't working out in the first 6 months, the clean break is the protection for both sides.

This protection does NOT apply to voluntary departures. If you choose to leave before the cliff, you receive nothing — that's the risk you accept.

This protection does NOT apply to for-cause removal for any of the following grounds under Section 10.3:

Felony conviction or crime of moral turpitude
Actions that materially harm the Company, its reputation, or its mission
Material breach of this agreement (as defined in Section 10.0)

In those cases, standard cliff rules apply (no equity before 12 months).

This protection DOES apply to removal for failure to fulfill role responsibilities (the fourth removal ground in Section 10.3) — because that ground requires the accountability process (Section 12.4), and a Cofounder who completed 7+ months before the team decided to act should not lose cliff protection due to the team's timing of the process.

5.4 Admitting New Cofounders

New cofounders may be admitted to the founding team under the following process:

Approval:

Requires unanimous consent of all existing Cofounders (no exceptions)
Existing Cofounders must agree on the new cofounder's equity grant, focus area, and terms before extending the offer

Integrity & Values Alignment (required before vote):

A new cofounder receives equal governance power — veto rights, voting authority, and the ability to shape the Company's direction. Admitting someone without vetting their integrity puts every protection in this agreement at risk from the inside. Before the unanimous approval vote, existing Cofounders must conduct an honest assessment of the candidate's alignment with Lantern's values and governance model:

Mission alignment: Does the candidate genuinely share Lantern's mission, or are they joining for equity upside? How do they talk about users, privacy, and the product's purpose?
Governance philosophy: Do they understand and support employee-ownership, democratic governance, and the salary cap? Have they demonstrated a pattern of collaborative decision-making, or do they default to top-down authority?
Financial integrity: Are they transparent about their financial interests, outside commitments, and expectations? Are they comfortable with the profit-sharing model and the anti-greed safeguards?
Conflict behavior: How do they handle disagreement? Do they engage with integrity, or do they escalate, manipulate, or go silent? References from previous cofounders, partners, or collaborators are strongly recommended.
Long-term commitment: Are they prepared for the pre-revenue grind, the vesting cliff, and the reality that this may produce $0? Do they understand the risks acknowledged in Section 12.5?

This is not a checklist to pass — it's a conversation to have honestly. Any existing Cofounder who has reservations about a candidate's integrity should raise them before the vote, not after. A "no" vote based on integrity concerns is always valid and requires no justification beyond "I'm not comfortable."

Required integrity questions:

Each existing Cofounder must ask the candidate at least one integrity-focused question during the vetting process. These are direct, open-ended questions designed to reveal how the candidate thinks and acts when it matters — not what they say they believe.

Each Cofounder chooses their own question based on what they need to hear
Questions should probe real situations, not hypotheticals (e.g., "Describe a time you had the power to benefit yourself at someone else's expense — and what you did" rather than "What would you do if...")
The candidate's responses are not scored — they're discussed among existing Cofounders before the vote
Rehearsed, evasive, or self-congratulatory answers are themselves informative
Questions and the Cofounders' assessment of the responses are documented as part of the admission record

This is a requirement, not a suggestion. The unanimous vote cannot proceed until every existing Cofounder has conducted their integrity question.

Equity Source for New Cofounders:

New cofounder equity comes from one or more of the following, as agreed unanimously:

Cofounder reserve (preferred) — draw from the reserved cofounder pool (see Section 5.5). This is the cleanest option and avoids diluting existing founders
Employee pool — draw from the reserved 10–15% employee pool (reduces future hire allocation)
Equal dilution — all existing Cofounders dilute equally to create the new cofounder's share
Combination — any mix of the above

The method must be documented in a written amendment (Addendum) signed by all existing Cofounders and the incoming Cofounder.

New Cofounder Equity Range:

Recommended range: 3–10%, depending on stage of company, contributions expected, and what the new cofounder brings
The exact amount is determined by unanimous agreement — there is no default or entitlement
New cofounders do not automatically receive the same percentage as original founding Cofounders

New Cofounder Terms:

Subject to the same vesting schedule (4-year vesting, 1-year cliff) starting from their admission date
Must sign this Cofounder Agreement (or a formal equivalent if the company has incorporated by then)
Must agree to all governance commitments in Section 9 (Immutable Rights, employee-ownership model, anti-greed safeguards)
Must complete the IP assignment (Section 7) and pre-existing IP disclosure (Exhibit A)
Must agree to confidentiality obligations (Section 8)

Profit Sharing & Compensation:

New cofounders participate in equal profit sharing per Immutable Right #4 from their admission date forward — their equity percentage does NOT affect their profit share (see "Understanding the Distinction" above)
The same applies to future employees: once they become employee-owners, they receive the same profit share as every cofounder
Pre-revenue: same sweat equity terms as existing Cofounders
Post-revenue: salary determined collectively, consistent with the equal pay principle and 3× cap

Governance Impact:

New cofounders receive full voting rights as Cofounders
Decision-making thresholds adjust automatically:
- Major decisions: Unanimous consent of all Cofounders (including new)
- Dispute resolution: Supermajority adjusts to the new cofounder count (e.g., 6-of-7 at seven Cofounders, rounded up per Section 4.2)
- Involuntary removal: Unanimous vote of all other Cofounders
Deadlock procedures (Section 4.4) are updated accordingly in the written amendment

Documentation Required:

Admitting a new Cofounder triggers a written Addendum to this agreement that includes:

New Cofounder's name, email, and focus area
Equity percentage granted and source (pool, dilution, or combination)
Vesting start date
Updated equity table reflecting all Cofounders' revised percentages
Signatures of all Cofounders (existing + new)

5.5 Cofounder Reserve Pool

A cofounder reserve of 13% is set aside at founding to accommodate future cofounders without forcing dilution or raiding the employee pool. The reserve is intentionally sized to cover roughly 1–4 additional cofounders at smaller grants (3–10% each, per Section 5.4) before any dilution of the founding six would be required.

Reserve amount: 13% (default; may be adjusted at signing per Section 5.1)

Rules:

Reserve equity is unissued — it belongs to no one until granted to a new cofounder
Can only be used to grant equity to new cofounders admitted under Section 5.4
Cannot be used for employees, advisors, contractors, or any non-cofounder purpose
Grants from the reserve require unanimous consent of all existing Cofounders

Expiration & Rollover:

If the cofounder reserve (or any remaining portion) is not allocated by the earlier of:

18 months from the date of this agreement, OR
Formal incorporation of the company

then the unallocated reserve automatically rolls into the employee pool, increasing the equity available for future hires. This rollover requires no vote — it happens by default.

Rationale: Reserving equity upfront is a small haircut now (~2% per founder) that avoids awkward dilution conversations later. If it's unused, it strengthens the employee pool — nothing is wasted.

5.6 Phase 3 — Automatic Equity Grant Phase-Down

⚠️ COFOUNDERS: REVIEW BEFORE SIGNING. The revenue milestones and percentages in the phase-down schedule below are illustrative examples based on typical SaaS scaling patterns. The Cofounders must review, discuss, and agree on the actual numbers before signing this agreement. Replace the example values with agreed figures and remove this notice before execution.

Purpose. As the Company grows, each percentage point of equity is worth more in absolute dollars. A 5% C-suite grant when the company is worth $1M = $50K. That same 5% at $100M = $5M. New grants should shrink as the company scales — you're giving less equity because each point is worth more. This phase-down ensures the employee pool lasts longer and reduces reliance on collective relinquishment (Section 5.9) as the primary mechanism for funding new grants.

How it works:

Grant sizes reduce automatically when the Company crosses revenue milestones
Existing holders keep what they have — reductions apply only to new grants issued after the milestone is crossed. No clawback, no retroactive adjustment, no renegotiation.
The phase-down is the default. It applies automatically unless modified through the review process below.
§5.9 collective relinquishment becomes an emergency fallback, not the standard mechanism — the phase-down should keep the pool healthy under normal growth

Default Phase-Down Schedule (C-suite entry grants):

Example values — replace with agreed figures before signing.

Revenue Milestone (Trailing 12-Month)	C-suite Entry Grant	Notes
Pre-Phase 2 (< $1.2M ARR)	5%	Current §5.8 default
$1.2M–$5M ARR	4%	First reduction at salary trigger
$5M–$10M ARR	3%
$10M–$25M ARR	2%
$25M+ ARR	1.5%	Floor — does not reduce further without addendum

How milestones are measured: Trailing 12-month revenue (T12M) as of the grant date. The milestone in effect at the time of the Tier 2 approval vote governs the grant — not the milestone at the time the offer is extended or the hire starts. If the Company crosses a milestone between offer and grant, the lower (post-milestone) rate applies.

Default Phase-Down Schedule (employee-owner grants):

Example values — replace with agreed figures before signing.

Revenue Milestone (Trailing 12-Month)	Per-Employee Grant Range	Notes
Pre-Phase 2 (< $1.2M ARR)	Per Operating Agreement	No fixed default pre-Phase 2
$1.2M–$5M ARR	0.25%–1.0%	Range set by Operating Agreement within this band
$5M–$10M ARR	0.15%–0.75%
$10M–$25M ARR	0.10%–0.50%
$25M+ ARR	0.05%–0.25%	Floor range

Employee-owner grant sizes within each band are set by the Operating Agreement based on role, seniority, and market benchmarks. The phase-down constrains the maximum — the Operating Agreement determines the specific grant within the band.

Grandfathering — no retroactive changes:

A C-suite member who received 5% at $2M ARR keeps 5% even after the Company crosses $5M ARR
A new C-suite member hired at $6M ARR receives 3% (the rate in effect at that milestone)
No existing holder's equity is touched by the phase-down — ever. Tier 1 protections (Section 4.1) apply absolutely.

Interaction with §5.8 (C-suite promotion):

The "5% at entry" in §5.8 is the Phase 1/pre-Phase 2 default. Once the phase-down activates (at the first milestone crossing), the phase-down rate replaces the flat 5% for all new grants.
The §5.8 class-parity rule for §5.9-funded grants still applies — but the parity target is now the phase-down rate, not the flat 5%. Example: at $7M ARR, a new C-suite member enters at 3% (the phase-down rate), and if §5.9 relinquishment is needed, existing C-suite dilute to parity with 3%, not 5%.

Interaction with §5.9 (collective relinquishment):

The phase-down is designed to make §5.9 rare. Smaller grants drain the pool more slowly, extending its life.
If the pool does run out despite the phase-down, §5.9 still functions as the emergency mechanism — but the relinquishment funds a smaller grant (the phase-down rate), so the dilution hit is proportionally smaller too.

Modifying the schedule — governance-gated review:

The phase-down schedule above is the default. It can be modified via written addendum under the following gates:

Tier 2A dual-gate (Section 4.2): Cofounder 75% supermajority AND (if C-suite exists) C-suite majority
Tier 3 ⅔ consent (Section 4.1): the employee-owner class is directly affected by grant sizing
Mission Arbiter review (Section 9.4): required if the modification increases any grant percentage above its current phase-down rate (guards against self-enrichment). Not required for reductions or for adjustments that stay at or below current rates.

Mandatory review trigger: The phase-down schedule must be placed on the agenda for review at the first annual meeting after the Company's trailing-12-month revenue first reaches $5 million. This ensures the illustrative defaults are revisited with real data before the mid-range milestones bind. The review may confirm the defaults, adjust them, or adopt a different structure entirely — subject to the governance gates above.

Upward adjustments are disfavored. The schedule is expected to reduce or hold grant sizes as the Company matures. Upward adjustments (increasing a grant percentage above its current phase-down rate) require all three governance gates above, plus documented rationale for why the increase serves the Company's interests rather than executive self-enrichment.

Explicitly out of scope. This phase-down governs future grants only. Existing vested and unvested equity held by any Cofounder, C-suite member, or employee-owner is untouched. The §5.8 "No involuntary reduction, ever" clause and Immutable Right #1 foreclose any retroactive reduction.

Floor — grants cannot reach zero. The phase-down cannot reduce any grant category to 0%. A minimum floor (1.5% for C-suite, 0.05% for employees in the example schedule) ensures that equity grants remain a meaningful component of the employee-ownership model at any scale. Setting any grant floor to 0% would effectively foreclose future employee ownership at that level, which conflicts with Immutable Right #1 and requires Mission Arbiter veto.

Rationale. A concrete default schedule is stronger than a framework-only commitment because it applies automatically — no one has to remember to convene a review, no one can defer indefinitely, and the pool is protected by default. The review process exists to adjust the defaults if real-world conditions diverge from projections, not to create the reductions from scratch. This preserves pool longevity, reduces reliance on collective relinquishment, and keeps the cap table predictable for everyone.

5.7 Employee Pool

An employee pool of 15% is reserved at founding to fund future equity grants to non-cofounder employees — including C-suite hired in Phase 2 and any other employees the Company grants equity to under its employment policies.

Pool amount: 15% (default; may be adjusted at signing per Section 5.1)

Rules:

Pool equity is unissued — it belongs to no one until granted to an employee under a written grant agreement
Reserved on a fully-diluted basis; the 15% appears on the cap table as authorized-but-unissued equity from day one, parallel to the Cofounder Reserve (Section 5.5)
Can be granted to non-Cofounder employees under the grant process formalized in the Operating Agreement
Serves as the primary source for C-suite promotion grants per Section 5.8 (fixed 5% bump on promotion)
May also serve as a source for new Cofounder grants per Section 5.4 (option 2) when the Cofounder Reserve is insufficient or exhausted
Unallocated Cofounder Reserve rolls into this pool per Section 5.5 (Expiration & Rollover)

Replenishment from buybacks: Per Section 10.4, equity bought back from departing employee-owners returns to the Employee Pool as unissued equity, available for future grants. Buyback restores unissued capacity on the cap table — it does not increase the fully-diluted percentage held by remaining Cofounders.

Rationale: Reserving the pool upfront on a fully-diluted basis means future hires are funded from equity the Company already accounts for, not through surprise dilution of the founding team at each grant. It also keeps the cap table honest to future employees — the "15% pool" they see is genuine reserved capacity, not aspirational future dilution.

5.8 Promotion to C-suite

Employee-owners may be promoted into C-suite roles as the Company grows. Promotion is a deliberate elevation — not an automatic transition — and carries both a governance gate and a fixed equity bump. This section defines the mechanics; post-incorporation, the Operating Agreement will formalize the promotion process (selection, role definition, onboarding) within these binding constraints.

Scope: This section governs the promotion of an existing non-Cofounder employee-owner into a C-suite role. Cofounders do not receive promotion bumps — Cofounder status already sits at the governance ceiling of this Agreement. Direct external hires into C-suite are governed by the Operating Agreement's hiring and equity-grant processes, not by this section.

Approval gates: Promotion into C-suite is both a hiring decision (adds to the C-suite roster) and an equity-grant decision, so two independent gates must pass:

Tier 2 Cofounder-only supermajority (75%) — C-suite hiring is a Cofounder-only prerogative under Section 4.2; existing C-suite do not vote on adding new C-suite peers. Post-Cofounder, this gate transitions to C-suite supermajority (75%) per Section 10.4 governance succession.
Tier 3 ⅔ consent — because promotion creates new equity affecting the employee-owner class. The Tier 3 voter class excludes both Cofounders and C-suite per Section 4.1; the promotee recuses from the vote and is not counted in the denominator.

Equity bump — 5% at entry: An employee-owner promoted into a C-suite role receives a 5% equity grant, in addition to any equity they already hold. The 5% figure is intentionally fixed — it does not vary by role, title, seniority, or negotiation. Fixing the number eliminates lobbying, prevents favoritism, and keeps the cap table predictable as C-suite grows. This 5% is the canonical entry grant until modified through class parity relinquishment mentioned in the section below or a Phase 3 Equity Review addendum per Section 5.6; it may be reduced or adjusted only through that process.

Class parity when funded via §5.9 relinquishment: When Section 5.9 collective relinquishment is required to fund the grant (because the Pool has insufficient capacity), the newcomer instead enters at parity with existing C-suite peers' post-event stake — not at a flat 5%. This prevents the newly-promoted C-suite from arriving with a larger stake than the peers whose relinquishment helped fund the grant.

Worked example: Two existing C-suite at 5% each, Pool drained. A third C-suite promotion is approved and §5.9 fires. Existing C-suite relinquish proportionally down to 4.76%; the newly-promoted C-suite also enters at 4.76%. The §5.9 replenishment is sized precisely to fund the parity grant — no more, no less.

Edge case — no existing C-suite: If there are no existing C-suite at the time of a §5.9-funded grant, the flat 5% applies (there is no peer to match). Subsequent C-suite promotions during drained-Pool conditions then proceed at class parity with this initial member.

One bump per person: The 5% promotion grant applies once per employee-owner, on the occasion of their transition from non-C-suite employee-owner status into C-suite. Subsequent role changes within C-suite (e.g., CFO → CEO) do not trigger additional grants.

Vesting: The 5% promotion grant vests on a fresh 4-year schedule with a 1-year cliff, starting on the promotion date. The promotee's existing equity continues to vest on its original schedule and is unaffected. Full acceleration on acquisition (Section 5.2) applies to the promotion grant on the same terms as all other Cofounder and employee-owner equity.

Source of the grant — in order of priority:

Employee Pool (primary, expected source) — promotion grants draw from the unissued Employee Pool (Section 5.7). This is the default path for every promotion while the Pool has capacity.
Pool replenishment via collective relinquishment (Section 5.9) — if the Pool has insufficient unissued capacity, the Pool is replenished through the collective relinquishment process defined in Section 5.9. The promotion grant is then made from the replenished Pool. Collective relinquishment is the default mechanism when the Pool runs short; individual voluntary top-ups are permitted within that process as a supplement, but cannot replace the collective mechanism.

Pacing under a drained Pool: Because Section 5.9 caps each relinquishment event at 5 percentage points and imposes a 12-month cooldown between events, when the Employee Pool is fully drained the combination of these constraints effectively limits post-drain C-suite promotions to one per rolling 12 months, absent an emergency dissolution-avoidance exception under Section 4.5. This is a deliberate throttle: it forces growth planning ahead of Pool exhaustion and prevents stacked promotion-driven dilution events.

Internal-first hiring: For any new C-suite role, the Company must conduct a documented internal search for at least 30 days before opening the role to external candidates. Existing employee-owners who apply receive a structured review and written rationale if not selected. An external search may commence sooner only if the Tier 2 dual-gate (Section 4.2) approves a written skill-gap analysis documenting that no existing employee-owner has the qualifications required. This prevents token internal searches while preserving the growth-path promise to employees.

No involuntary reduction — ever. No Cofounder's or employee-owner's vested or unvested equity may be reduced, reclaimed, or reallocated without their consent. Promotions are funded from the Pool or from the collective-relinquishment process of Section 5.9 (which is itself vote-gated and applies equally to all issued holders). This rule reinforces Immutable Right #1 (100% employee ownership) and the Tier 1 protections of Section 4.1, and applies in every era — Cofounder, C-suite-led, and any successor governance structure.

Rationale: A 5% entry grant makes promotion meaningful, predictable, and hard to game. The class-parity rule for §5.9-funded grants prevents seniority inversion — a later promotee cannot arrive with a larger stake than the peers whose relinquishment funded them — which both preserves fairness within C-suite and removes a self-interested disincentive existing C-suite might otherwise have against voting for peer promotions. The Pool-first, collective-relinquishment-second source hierarchy means dilution is a collective governance act rather than an individual moral act — the burden, when it arises, is shared equally and only with broad consent. Tier 3 ensures rank-and-file equity holders — not just the beneficiary's direct peers — sign off on new equity allocations, which keeps the check meaningful even in the post-Cofounder era when C-suite has inherited operational governance. Together, these mechanics create a real ladder into ownership without concentrating power in whoever already sits at the top.

5.9 Pool Replenishment via Collective Relinquishment

When the Employee Pool (Section 5.7) is insufficient to fund a needed grant — whether for a new employee hire, a new Cofounder admission (Section 5.4 option 2), or a C-suite promotion bump (Section 5.8) — Pool capacity is restored through collective equal relinquishment of existing issued equity. This is the default mechanism whenever the Pool runs short; individual voluntary top-ups are permitted as a supplement but cannot replace it.

Why collective, not individual: When the Company needs more equity to grow, the dilution should be borne by the whole holder class equally, not by whichever individual is willing to donate. This avoids awkward social pressure on individual holders, distributes the burden fairly, and ensures that the decision to dilute is a collective governance act with broad consent.

Trigger: Pool replenishment may be initiated only when a specific, governance-approved grant (hiring, admission, or promotion) cannot be funded from existing Pool capacity, and the gap is documented in writing. Replenishment is not speculative — it is always tied to a concrete grant.

Governance gates — all three must pass:

Tier 2 dual-gate (Section 4.2): Cofounder 75% supermajority AND (if C-suite exists) C-suite majority
Tier 3 ⅔ consent (Section 4.1) of the non-Cofounder, non-C-suite employee-owner class, because all issued holders are directly affected. If Tier 3 is dormant (no outside employee-owner exists yet — see Section 3), this gate is inapplicable and only the Tier 2 and Mission Arbiter gates must pass.
Mission Arbiter review (Section 9.4) because Pool replenishment is an equity restructuring that touches the ownership structure

Mechanism — equal proportional relinquishment:

All issued equity holders (Cofounders + C-suite + non-C-suite employee-owners) relinquish a proportionally equal share of their own stakes. The proportional model ensures holders with larger stakes contribute more in absolute points while all stakes shrink by the same percentage of their current size.

Example: The Pool is empty and a 5-percentage-point replenishment is approved. Issued equity at that moment totals 80% (72% Cofounders + 5% C-suite + 3% employee-owners). Every issued holder's stake shrinks by 5 / 80 = 6.25% of their current stake:

A Cofounder at 12% → 11.25% (relinquished 0.75pp)
A C-suite member at 5% → 4.6875% (relinquished 0.3125pp)
An employee-owner at 1% → 0.9375% (relinquished 0.0625pp)
Pool grows from 0% → 5% unissued

Unissued reserves (Cofounder Reserve (Section 5.5) and any remaining Pool capacity) are not part of the relinquishment — they belong to no one and cannot be diluted from.

Sizing exception for C-suite promotion grants: When a §5.9 event funds a C-suite promotion, the replenishment is sized not to deliver a flat 5pp to the Pool, but to deliver a grant at class parity with existing C-suite post-event (see Section 5.8 — Class parity). In practice this means a slightly smaller replenishment than the 5pp illustrative example above, and the newcomer enters at the same level as existing C-suite rather than above them.

Individual voluntary top-up (optional supplement):

Any issued holder may elect to relinquish more than their equal share, reducing the equal-share burden on everyone else proportionally. Top-ups must be:

Entirely voluntary and unsolicited — never requested, pressured, or suggested by any governance body, the grant beneficiary, or another equity holder
Documented in a signed written statement by the top-up donor, expressly acknowledging it is of their own free will and specifying the additional percentage being relinquished
Disclosed to all equity holders before the Tier 3 vote, so all holders can factor pledged top-ups into their vote on the equal-share amount
Never a substitute for the collective mechanism — top-ups layer on top of equal relinquishment; they do not replace it

Anti-coercion: Soliciting or pressuring any holder to top up — directly, indirectly, or through implied consequences (e.g., conditioning role changes, performance evaluations, governance support, or future grants on a top-up) — is a material breach of this Agreement. Any top-up made under solicitation or duress is void, and the relinquished equity must be restored. The Company's anti-retaliation protections (Section 3 and Section 12.4) extend to any holder who declines to top up.

Frequency and ceiling:

Cooldown: No more than one collective relinquishment event may occur in any rolling 12-month period, except in the case of an emergency dissolution-avoidance hire approved under Section 4.5. This prevents repeated dilution events from eroding founding stakes rapidly.
Per-event cap: A single relinquishment event may not exceed 5 percentage points of Pool replenishment. Larger replenishments require consecutive events with the cooldown observed between them.
Lifetime floor for founding Cofounders: Under no circumstances may a founding Cofounder's total equity stake be reduced below 8% through Section 5.9 relinquishments alone (absent that Cofounder's written consent to go lower, or their departure). This preserves a meaningful founding stake even through repeated replenishment events.

Documentation: Each Pool replenishment event must be recorded in writing with:

The specific grant(s) requiring the replenishment, and proof that Pool capacity was insufficient
The approved replenishment percentage
The resulting before/after equity percentages for every issued holder
Any voluntary top-ups and the signed statements documenting them
The Tier 2, Tier 3, and Mission Arbiter approvals
An updated cap table, signed by all active Cofounders (and, once hired, the C-suite)

Rationale: The collective mechanism makes dilution a shared, transparent, infrequent event rather than a recurring individual negotiation. The equal-proportional math protects smaller holders from being wiped out. The cooldown and cap keep dilution events rare and bounded. The lifetime 8% floor preserves founding stakes as meaningful even under repeated growth-funding events, without foreclosing the possibility that a Cofounder voluntarily consents to a lower stake.

6. Compensation

How compensation works at Lantern: Profit sharing comes before salaries. This is intentional — it means the team starts benefiting from revenue growth as early as possible, without waiting for the company to reach full salary-paying scale. Salaries kick in later, once the company can sustainably support them. Both continue in parallel once Phase 2 is reached. The 70/30 profit split (described in Section 6.1) applies permanently across all phases, including any future Phase 3 initiated via Section 5.6.

Profit sharing applies in all phases — it begins at the $10K MRR trigger and continues permanently, including after salaries begin and through any future Phase 3 activation. It is never replaced by salary; both run in parallel from Phase 2 onward.

During Phase 1 ($10K–$100K MRR), profit sharing is the primary form of cash compensation. There are no fixed salaries yet — what you take home depends entirely on what the company earns and what remains after expenses and reserves. During Phase 2, profit sharing stacks on top of salary.

The formula — in order, every quarter:

Revenue
− Operating expenses (hosting, tools, infrastructure, contractors, taxes, debt, buyback obligations)
− Salaries + benefits (Phase 2 only — not applicable until salary trigger is met)
─────────────────────────────────────────────
= Profit

Profit × 70% → Profit sharing pool (split equally among all employee-owners)
Profit × 30% → Reserve pool (permanent — never redirected)

The split applies to profit only, never revenue. Revenue is what comes in. Profit is what remains after the company has paid everything it owes to operate. The 70/30 split is permanent across all phases and does not change once the reserve target is reached — 30% of profit goes to reserve every quarter, always.

Profit sharing frequency: Quarterly. Can be adjusted to monthly or semi-annually by supermajority vote.

If profitability is inconsistent: Profit sharing only occurs in quarters where the company is profitable. If the company is unprofitable in a given quarter, distributions pause. Salaries (once triggered) continue — but are subject to shared sacrifice (Immutable Right #5) if the company is in sustained distress.

Phase 1 Example — $10K MRR (profit sharing only, no salaries):

Monthly revenue: $10,000 Operating expenses (hosting, tools, services): $3,000 Monthly profit: $7,000 → Quarterly profit: $21,000
70% profit sharing pool: $14,700 → split 6 ways = ~$2,450/person this quarter 30% reserve: $6,300 → held in reserve

Phase 2 Example — $100K MRR (profit sharing + salaries):

Monthly revenue: $100,000 Operating expenses (hosting, tools, infrastructure): $12,000 Salaries + benefits (6 cofounders at ~$90K total comp each): $45,000/month Total expenses: $57,000 Monthly profit: $43,000 → Quarterly profit: $129,000
70% profit sharing pool: $90,300 → split 6 ways = ~$15,050/person this quarter 30% reserve: $38,700 → held in reserve
Each cofounder receives: $22,500 salary (quarterly) + ~$15,050 profit share = ~$37,550 this quarter

📌 Note on Phase 2 margins at six cofounders: The numbers above are illustrative at the $100K MRR trigger and assume a ~$90K total comp benchmark. At six cofounders, payroll at the living wage floor can press against the trigger — Phase 2 is designed to be sustainable at that threshold, not generous. Distributions scale with revenue growth above $100K MRR; the early Phase 2 period may be thin by design. See Section 6.3 for the trigger rationale.

6.2 Pre-Revenue Period (Current Phase)

All Cofounders agree to work without cash compensation during the pre-revenue period. This phase is sweat equity — the work you put in before revenue exists is reflected in your ownership stake, not back pay.

Cofounder equity is intentionally sized to account for this pre-revenue contribution. The founding equity grant represents not just future value created, but the risk and unpaid work of getting the company off the ground. There is no deferred salary, no back pay, and no accruing liability — the equity is the compensation for this phase.

Available during pre-revenue:

Business expense reimbursement (pre-approved, with receipts)
Small monthly stipend if agreed upon by all Cofounders: $______/month (or $0)

6.3 Compensation Triggers

There are two compensation triggers — profit sharing first, then salaries. They are independent milestones, not sequential gates. Hitting the salary trigger does not replace profit sharing; both run simultaneously from Phase 2 onward. Separate from these compensation triggers, a Phase 3 equity review for forward grant sizing is governed by Section 5.6 — Phase 3 is not a compensation change.

Profit Sharing Trigger (Phase 1) — $10K MRR:

Equal profit sharing begins when all of the following are met:

Monthly Recurring Revenue (MRR) reaches $10,000+ ($120K/year)
The Company is operationally profitable — revenue exceeds operating expenses for 3 consecutive months
A minimum cash reserve of 3 months operating expenses has been established

What this means day-to-day between $10K and $100K MRR:

Profit sharing is the primary form of cash compensation — there are no fixed salaries yet
What you take home each quarter depends on what the company earns and what's left after expenses and reserves
Distributions may be modest at lower MRR but grow as revenue scales — pushing toward the salary trigger is directly rewarded
Expense reimbursement and stipends (Section 6.2) continue throughout this phase
This phase incentivizes everyone to grow revenue while being immediately rewarded for doing so

Salary Trigger (Phase 2) — $100K MRR or seed funding:

Cash salary begins when either condition is met:

Monthly Recurring Revenue (MRR) reaches $100,000+ ($1.2M/year), OR
Successful seed funding closes

Reserve requirement at Phase 2: When the salary trigger is met, the minimum cash reserve increases from 3 months to 6 months of operating expenses. The 30% reserve pool is permanent and always flows — it is never paused or redirected. By the time the salary trigger is reached, the 6-month reserve will ideally already be funded from Phase 1's ongoing 30% contributions. If it is not yet fully funded when Phase 2 begins, profit sharing distributions (the 70% pool) pause until the 6-month threshold is met. Salaries begin immediately regardless.

Why $100K MRR for salaries? At six cofounders paid at the living wage floor (dynamically set to the highest cost-of-living benchmark among all employee locations), payroll alone is likely to exceed $540K+/year before benefits, tools, and infrastructure. $100K MRR ($1.2M/year) is the floor at which Phase 2 becomes sustainable — not comfortable. Early Phase 2 will run thin: profit sharing distributions will be modest until revenue scales meaningfully above the trigger. This is accepted by design rather than a reason to raise the trigger — the alternative (deferring salaries longer) prolongs sweat-equity pressure on Cofounders who may need income sooner. Cofounders acknowledge this tradeoff in Section 12.5.

Summary:

	Phase 1 — Profit Sharing	Phase 2 — Salary
Trigger	$10K MRR + 3 months profitable + reserve funded	$100K MRR or seed funding
What you receive	Equal share of 70% of quarterly profit	Equal base salary at living wage floor
Profit sharing	Yes — primary cash compensation	Yes — continues on top of salary
Can it pause?	Yes — pauses in unprofitable quarters	Salary: only via shared sacrifice. Profit sharing: pauses until 6-month reserve is met, then pauses if unprofitable.
Reserve requirement	3 months operating expenses (minimum)	6 months operating expenses (minimum)

6.4 Living Wage Floor

Lantern's minimum compensation is a living wage (Immutable Right #7). Rather than calculating per-location, Lantern uses the highest cost-of-living benchmark among all cofounder/employee locations as the universal floor. This means:

One number for everyone — no geographic wage tiers, no "your city is cheaper" arguments
Dynamic, not fixed — the floor is recalculated annually (or when a new employee joins from a higher-cost area) based on:
1. Living wage data for the highest cost-of-living location among all employee-owners (e.g., MIT Living Wage Calculator, Economic Policy Institute)
2. The higher of: the calculated living wage OR the current floor (the floor never goes down)
Affordability constraint: If revenue cannot support the living wage floor for all employee-owners, the company follows the shared sacrifice protocol (Immutable Right #5) — all salaries reduce equally before any layoffs are considered. The floor is a target obligation, not a reason to take on unsustainable debt. Clarification: During shared sacrifice, actual compensation may temporarily fall below the living wage floor. The floor itself is never reduced — it remains the target that compensation returns to when the company recovers. The distinction: the floor is a permanent benchmark that only moves up; actual pay may temporarily dip below it under shared sacrifice, but the Company's obligation to restore full compensation to the floor level remains.
Annual review (Q3): The living wage floor is reviewed annually in Q3 (July) to align with published wage data. Approval requires cofounder supermajority + employee-owner signoff (not cofounder-only), consistent with Tier 3 requirements. The floor cannot be adjusted downward (per Immutable Rights).
- Tier 3 dormant period: While Tier 3 is dormant (no non-Cofounder, non-C-suite employee-owner holds equity — see Section 3 activation rule — typically pre-Phase 2), the Q3 review is effectively the Cofounders voting on their own wage floor. This is acceptable because the structural guardrails in this section — the floor is tied to externally published wage data (MIT Living Wage Calculator, EPI) for the highest-cost cofounder/employee location, and it cannot move down — prevent the usual self-dealing risk. Cofounders cannot lower the floor for themselves, and they cannot raise it above what published data supports for the benchmark location. The moment any non-Cofounder, non-C-suite employee-owner is granted equity, Tier 3 activates per Section 3 and becomes a genuine independent gate on the Q3 review — regardless of whether the Company has reached Phase 2.

Current benchmark location: ____________________ Current living wage floor: $______/year (to be determined at compensation trigger)

6.5 Salary (Phase 2)

When the salary trigger is met ($100K MRR or seed funding), all Cofounders will receive equal base salary, at or above the living wage floor (Section 6.4), consistent with:

The 3× salary cap (highest-paid cannot exceed 3× lowest-paid) per the Immutable Rights framework
Salary ranges from the Team Structure framework (adjusted once formal roles are assigned)

Initial cofounder salary: To be determined collectively when the salary trigger is reached. Equal base pay for all cofounders reinforces the equal partnership model.

Role-based adjustments: If cofounders later agree that certain roles warrant different compensation (e.g., market-rate adjustments for specialized roles), any deviation from equal pay requires unanimous cofounder consent and must stay within the 3× salary cap.

Profit sharing continues: Salaries do not replace profit sharing — they add to it. Once salaries begin, the profit formula (Section 6.1) remains unchanged: salaries are treated as an operating expense, and 70% of remaining profit is still distributed equally each quarter.

Reserve transition: The reserve minimum increases from 3 months to 6 months of operating expenses when Phase 2 begins. The 30% reserve pool always flows — this never changes. In practice, the reserve should already be at or above 6 months by the time salaries kick in, built from consistent 30% contributions during Phase 1. If for any reason the 6-month reserve is not yet fully funded when Phase 2 begins, profit sharing distributions (the 70% pool) pause until it is — salaries are unaffected. Once the 6-month reserve is met, profit sharing resumes and both run in parallel indefinitely.

6.6 Cofounder 1 Pre-Incorporation Profit Contribution

Cofounder 1 has voluntarily committed to redirecting a portion of their profit share during the pre-incorporation period. The full terms of this commitment are documented in Exhibit D (attached), which is incorporated by reference into this agreement. This is a cofounder-specific arrangement and does not establish a precedent or expectation for other Cofounders.

6.7 Tax Treatment & Withholding

⚠️ Plain-language summary for all Cofounders: When Lantern starts making money and distributing profit shares, you will owe taxes on that money — and nobody is going to withhold taxes for you. Unlike a W-2 job where your employer takes taxes out of every paycheck, profit distributions from an unincorporated partnership land in your bank account with zero taxes deducted. You are personally responsible for setting aside money for taxes and making quarterly payments to the IRS and the state. If you don't, you will owe penalties on top of the taxes. This section explains what that looks like in practice.

What is an EIN and when do we need one?

An EIN (Employer Identification Number) is a 9-digit number the IRS assigns to a business — think of it as a Social Security number for the company. It's free and takes about 10 minutes to obtain on the IRS website (irs.gov).

You need an EIN before any of the following — whichever comes first:

Event	Why you need the EIN
Opening a business bank account	Banks require it to open a business account
Filing any business tax return (Form 1065)	Can't file without one
Hiring anyone (W-2 employee or 1099 contractor)	Required for payroll and tax reporting
Incorporating the company	Part of the incorporation checklist (Section 2.2, step 5)

You do NOT need an EIN to: operate pre-revenue, build the product, sign this agreement, or receive expense reimbursements from a personal account.

Practical recommendation: Get the EIN when you open a business bank account or when Phase 1 ($10K MRR) is approaching — whichever comes first. Don't wait until tax filing season.

The tax timeline — what happens at each stage:

Stage 1: Pre-revenue (now)

No income = no taxes to pay. Nothing to file. No EIN needed yet.

Stage 2: Phase 1 profit sharing kicks in ($10K MRR) — BEFORE incorporation

This is the scenario that requires the most attention. Until the Company is formally incorporated, the Cofounders operate as a general partnership by default under California law (Cal. Corp. Code §§ 16101 et seq.; see Section 2.3). Here's what that means in plain terms:

How your profit share is taxed:

Your share of the profit is treated as partnership income — it's taxed on your personal tax return, not at the company level
It is not W-2 wages (no employer, no paycheck withholding)
It is not 1099 contractor income
It is reported on a Schedule K-1 (a tax form the partnership issues to each partner showing their share of income)

What you owe — and it's more than you think:

Tax	What it is	Approximate rate
Federal income tax	Tax on your share of partnership income	10–37% depending on your bracket
Self-employment tax (SECA)	Social Security + Medicare that would normally be split with an employer. As a partner, you pay both halves.	15.3% (12.4% Social Security + 2.9% Medicare)
California state income tax	State tax on your share of partnership income	1–13.3% depending on bracket
Total effective rate	Combined federal + SECA + state	Typically 30–45% of your distribution

⚠️ The critical point: nobody withholds taxes for you.

At a W-2 job, your employer takes taxes out of every paycheck. In a partnership, the full distribution lands in your bank account with $0 withheld. If you receive a $5,000 profit share, you get $5,000 — and you owe approximately $1,500–$2,250 in taxes that you must pay yourself.

What each Cofounder must do:

Set aside 30–40% of every distribution immediately. Put it in a separate savings account and don't touch it. This is not your money — it's the government's money that happens to be in your account temporarily.
Make quarterly estimated tax payments. The IRS and California FTB expect you to pay taxes as you earn, not once a year. The deadlines are:
Quarter Income earned during Payment due
Q1 Jan 1 – Mar 31 April 15
Q2 Apr 1 – May 31 June 15
Q3 Jun 1 – Aug 31 September 15
Q4 Sep 1 – Dec 31 January 15 (next year)
- Federal: File IRS Form 1040-ES with payment
- California: File FTB Form 540-ES with payment
- Penalty for not paying: The IRS charges an underpayment penalty (currently ~8% annualized) on any estimated tax you should have paid but didn't. California charges a similar penalty.
Consult a tax advisor before the first distribution. Each Cofounder's tax situation is different (other income, filing status, deductions). A tax advisor can calculate your specific estimated payment amounts.

Quarter	Income earned during	Payment due
Q1	Jan 1 – Mar 31	April 15
Q2	Apr 1 – May 31	June 15
Q3	Jun 1 – Aug 31	September 15
Q4	Sep 1 – Dec 31	January 15 (next year)

What the Company must do (pre-incorporation):

Engage a qualified tax preparer to file the partnership information return (Form 1065) at year end
Issue a Schedule K-1 to each Cofounder showing their share of partnership income
The cost of the tax preparer is a legitimate operating expense under Section 6.1 / Section 11
Guaranteed payments, stipends (Section 6.2), and reimbursed business expenses each have distinct tax characterizations — the preparer will classify them correctly

Stage 3: Post-incorporation (and Phase 2)

Once incorporation is complete and the Company has an EIN (Section 2.2, step 5), the tax picture changes significantly — and gets simpler for you personally. The specific treatment depends on the entity form counsel selects under Section 2.1:

Entity type	How salaries are taxed	How profit shares are taxed
C-Corp or cooperative	W-2 wages — employer withholds income tax, FICA, and pays employer-side payroll taxes. Feels like a normal paycheck.	May be structured as W-2 bonuses (with withholding), dividends, or patronage distributions (cooperative) — counsel decides
LLC (taxed as partnership)	K-1 pass-through — similar to pre-incorporation, but with a formal entity and EIN	K-1 pass-through — same self-employment tax obligations
S-Corp	W-2 wages for "reasonable compensation" portion — employer withholds	K-1 pass-through for the remainder — but NO self-employment tax on the K-1 portion (this is a key S-corp advantage)

The withholding and reporting regime — and the specific characterization of profit-sharing payments under the chosen entity form — shall be finalized with qualified tax counsel before the first post-incorporation distribution, and documented in the Operating Agreement or a companion policy. No Cofounder shall assume a specific tax characterization without that confirmation.

Why this matters for the incorporation decision:

Operating as an unincorporated partnership while distributing material profit shares creates:

Tax complexity — every Cofounder is personally responsible for estimated payments, self-employment tax, and record-keeping
Personal liability exposure — described in Section 2.3
No employer-side tax infrastructure — no withholding, no payroll, no W-2s

A material Phase 1 distribution is an additional reason to accelerate incorporation (Section 2.4), independent of the 24-month Phase 1 Stall Backstop. Incorporation gives the Company an EIN, a tax identity, and (depending on entity type) the ability to withhold taxes from distributions — which makes everyone's life simpler.

Bottom line for every Cofounder: When profit sharing starts, treat 30-40% of every distribution as spoken for. Pay your estimated taxes quarterly. Get a tax advisor. Don't spend the government's money.

7. Intellectual Property Assignment

7.1 Assignment

Each Cofounder irrevocably assigns to the Company (once incorporated) all right, title, and interest in:

All code, designs, inventions, content, and materials created for or related to Lantern
All intellectual property developed using Company resources, during Company time, or related to Company business
All trademarks, trade secrets, and proprietary methods developed for Lantern

Prior to incorporation, all IP is held in trust by the Cofounders collectively for the benefit of the future entity.

7.2 Pre-Existing IP

Each Cofounder retains ownership of intellectual property created before this agreement that is unrelated to Lantern. Any pre-existing IP contributed to Lantern must be disclosed in Exhibit A and is licensed (or assigned) to the Company as specified therein.

7.3 Governing Law for IP

IP assignment under this section is governed by the laws of the State of California (consistent with Section 14), except where federal intellectual property law (e.g., U.S. patent law, Copyright Act) preempts state law. Legal counsel should clarify jurisdiction for any patents, registered copyrights, or trademarks at incorporation.

7.4 Third-Party IP

Cofounders shall not incorporate third-party IP into Lantern without proper licensing. Open-source components must comply with their respective licenses.

7.5 Post-Departure

IP assignment survives departure. A departing Cofounder cannot claim ownership of Company IP, regardless of their contribution level.

8. Confidentiality

8.1 Scope

Each Cofounder agrees to keep confidential all non-public information related to Lantern, including but not limited to:

Business plans, strategies, monetization models, and go-to-market plans
Product features, roadmaps, technical architecture, and implementation details
Partnership discussions, merchant relationships, and pilot program details
Financial information, projections, and fundraising plans
User data strategies and privacy/encryption methodologies

8.2 Duration

Confidentiality obligations survive for 3 years after a Cofounder's departure from the Company. This extended duration reflects the sensitivity of Lantern's proprietary encryption methods, privacy architecture, and zero-knowledge design — trade secrets that remain competitively relevant well beyond a standard 2-year window.

Trade-secret carve-out. Notwithstanding the 3-year general window above, information that qualifies as a trade secret under applicable law (including, without limitation, the materials identified in Section 10.8 items 1 and 2) remains protected for as long as it retains trade-secret status. In the event of any conflict between Section 8 and Section 10.8 regarding the same category of information, the longer protection period controls.

8.3 Permitted Disclosures

Cofounders may disclose Confidential Information:

To potential investors, advisors, or partners with prior written consent of the other Cofounders
As required by law or court order (with prompt notice to other Cofounders)

8.4 Reference

This section extends the protections in the Mutual NDA template. The standalone NDA provides a 2-year term with 1-year post-termination survival; this Cofounder Agreement imposes a longer 3-year post-departure obligation (Section 8.2) reflecting the deeper access Cofounders have to proprietary information. Cofounders may also sign the standalone NDA for additional coverage with third parties.

9. Governance Commitments

All Cofounders agree to operate under Lantern's governance framework as documented in /docs/governance/. Key commitments include:

9.1 Immutable Rights

All Cofounders acknowledge and commit to upholding the 10 Immutable Rights as defined in IMMUTABLE_RIGHTS.md:

Employee-only ownership & control
Democratic governance (one person, one vote)
Salary cap (maximum 3× ratio)
Profit sharing equality
No layoffs without shared sacrifice
Privacy & user data protection (no data sales, ever)
Living wage minimum (dynamic floor based on highest cost-of-living benchmark among all cofounder/employee locations; reviewed annually)
Mission Arbiter review (mission protection — on-demand independent third-party veto; see Section 9.4)
Financial transparency
Right to vote & participate in governance

9.2 Employee-Ownership Model

Cofounders commit to structuring Lantern as an employee-owned company as outlined in GOVERNANCE.md. The specific legal mechanism for delivering employee ownership (worker-cooperative membership, ESOP trust, direct employee stock ownership with governance constraints, or an equivalent structure) is tied to the entity-type decision in Section 2.1 and will be chosen with counsel at incorporation. Regardless of form, the structure must deliver:

No traditional VC equity that grants voting control
No board seats for non-employees
No more than 10% non-employee equity stakes
Decision-making authority rests with employees per DECISION_MAKING_AUTHORITY.md

9.3 Anti-Greed Safeguards

Cofounders commit to the protections outlined in ANTI_GREED_SAFEGUARDS.md, including salary caps, debt limits, and mission-first decision-making.

9.4 Mission Arbiter (Mission-Critical Decisions)

Lantern's mission-protection check is the Mission Arbiter — an independent third-party neutral invoked on demand to review mission-critical decisions. There is no standing board. This design reflects two realities: (1) Lantern will not have external equity investors (see Immutable Right #1 and the Shareholder-Lender Framework — "shareholders" are redefined as non-voting lenders), so there is no investor bloc that a standing watchdog would need to push back against; and (2) the same independent-third-party mechanism already used for departure disputes (Section 10.6) can handle mission review on the rare occasions it is needed, without the overhead of maintaining a permanent body.

Triggers — decisions that require Mission Arbiter review before they take effect:

Sale, merger, or acquisition that would end or dilute employee ownership
Dissolution of the Company
Amendment to the mission statement
Issuance of any new class of voting equity, or any structure that grants voting rights to non-employees
Any governance change, amendment, or restructuring that could weaken, circumvent, or render ineffective any of the 10 Immutable Rights
Loan agreements that include equity-conversion triggers, personal guarantees, or other terms that could shift control to a lender

Mission-critical decisions above are Tier 2 decisions (Section 4.1) and separately require Cofounder supermajority and, where applicable, ⅔ employee-owner consent (Tier 3). Mission Arbiter review is an additional check — it does not replace the Cofounder or employee-owner votes.

Selection of the Mission Arbiter:

Pre-designation (encouraged): At signing or incorporation, the Cofounders may designate one or more qualified neutrals (startup attorney not representing either side, professional mediator with cooperative/mission-lock experience, nonprofit steward, or trusted mission-aligned advisor) as pre-approved Mission Arbiter candidates. The Section 10.6 departure arbiter may serve in this role as well, by mutual agreement.
Ad-hoc fallback: If no pre-designation exists when a triggering decision arises, the Cofounders proposing the decision nominate one candidate and any objecting Cofounder or employee-owner group (petition of ⅓ employee-owners) nominates another; the two candidates jointly select a third person who serves as Mission Arbiter. If the two candidates cannot agree on a third within 30 days, either side may request appointment from the American Arbitration Association under its Commercial Arbitration Rules, and the AAA's appointee shall serve as the Mission Arbiter.
Independence requirements: The Mission Arbiter may not be a current Cofounder, employee-owner, lender, family member of a Cofounder, competitor, or any party with a financial interest in the Company.

Pre-designated Mission Arbiter (optional, fill at signing): Name: ____________________ Contact: ____________________ Backup: ____________________

Authority:

Veto-only. The Mission Arbiter reviews the triggering decision and issues a written finding — either no objection, or a veto citing the specific mission violation or Immutable Right at risk.
Binding on the specific decision. A veto prevents the decision from taking effect.
The Mission Arbiter, acting in its Section 9.4 mission-protection capacity, may not initiate decisions, direct operations, hire or fire, initiate or unilaterally execute Cofounder removal, grant equity to non-employees, or weaken any Immutable Right. Its role under this section is defensive, not directive.
Separate Section 10.6 role for Cofounder removal: Under Section 10.3, at 2 Cofounders the Section 10.6 independent arbiter is a required procedural participant in Cofounder removal — confirming the accountability process was followed and that removal grounds are substantiated, without which removal cannot take effect. By mutual agreement the same neutral may hold both the Section 10.6 arbiter and Section 9.4 Mission Arbiter roles, but the Cofounder-removal gatekeeping authority derives from Section 10.6, not from this Section 9.4.

Override:

A Mission Arbiter veto may be overridden by 80% supermajority of the Tier 3 voter class (the same non-Cofounder, non-C-suite outside employee-owner roster that votes on Tier 3 decisions under Section 4.1 and Section 3). The Tier 3 roster is used deliberately: the Mission Arbiter exists as an external check on both cofounder and operational leadership, so allowing either Cofounders or C-suite to participate in overriding its veto would weaken the check. Cofounders' and C-suite's governance voice on mission-critical decisions is already exercised through their respective Tier 2 gates under Section 4.2. The override is not available when the veto is based on protection of an Immutable Right — in that case the veto stands and cannot be overridden by any vote (Immutable Rights cannot be voted away; see Section 4.1 "Off the table"). If Tier 3 is dormant (no outside employee-owner holds equity — see Section 3), the Mission Arbiter's veto is final and cannot be overridden until Tier 3 activates.
Post-Cofounder era: Once all Cofounders have departed and C-suite has inherited operational governance (Section 10.4 governance succession), the Tier 3 voter class — being defined as equity-granted employees who are neither Cofounders nor C-suite — continues to exclude both leadership classes by the same logic. If no Tier 3 voters remain (e.g., only C-suite hold equity), the Mission Arbiter's veto is final and cannot be overridden; the Operating Agreement shall address any further edge cases consistent with this design.
Override votes require the same 30-day review period as a constitutional decision and must be documented in writing with reasons.

Cost:

Borne by the Company as an operating expense post-revenue; pre-revenue, the Cofounders split the cost equally among themselves.
If the Arbiter finds the proposal was made in bad faith (fabricated justification, deliberate circumvention of Immutable Rights), the proposer(s) pay 100% of the Arbiter's fees.

Pre-incorporation and post-incorporation:

This mechanism applies identically before and after incorporation. Post-incorporation, the Operating Agreement will formalize the Mission Arbiter process and may add additional triggers; it may not remove triggers already listed here, and it may not convert the Arbiter into a standing body without amending Immutable Right #8.

Why this design (not a standing board):

The governance docs historically described a standing "Stewardship Board" of 3–7 trustees. The rationale for a standing body was mission protection against external investor pressure — but Lantern has structurally eliminated that pressure by forbidding external voting equity (SHAREHOLDER_LENDER_FRAMEWORK.md). With no investors, the remaining function — checking employee-supermajority mission drift — is rare enough that an on-demand arbiter is sufficient, cheaper to maintain, and uses the same third-party mechanism already in place for departure disputes.

9.5 Indemnification of Cofounders

Cofounders acting in good faith on behalf of the Company take on real personal exposure — contractor disputes, IP claims, data incidents, and third-party creditor actions can all reach individual Cofounders, particularly during the pre-incorporation period when no corporate entity exists to absorb liability. This Section establishes interim mutual protection now and pre-commits the Company to standard corporate indemnification at incorporation.

9.5.1 Pre-Incorporation Interim Mutual Hold-Harmless

Until the Company is incorporated, each Cofounder agrees that any Cofounder shall be indemnified and held harmless from any third-party claim, liability, cost, or expense (including reasonable attorneys' fees) arising from that Cofounder's acts or decisions made:

Within the scope of that Cofounder's role and authority under Section 3 and Section 4; and
In good faith and in the reasonable belief that the act was in the best interests of the Company and consistent with this Agreement.

Source of recovery: Indemnification is paid from Company assets only (including any pre-incorporation pooled funds under Exhibit B). No Cofounder shall have personal liability for indemnifying another Cofounder beyond the Company's assets; if Company assets are insufficient, the excess is written off. This matches the no-personal-liability principle already established for departure buyback notes in Section 10.4.

Carve-outs — no indemnification for:

Gross negligence or willful misconduct;
Fraud or intentional misrepresentation;
Breach of fiduciary duty owed to the Company or its employee-owners;
Material breach of this Agreement (as defined in Section 10.0), including violation of the Conflict of Interest Policy (Section 12.2) or expense-integrity rules (Section 11.2);
Criminal conduct or knowing violation of law;
Acts outside the scope of the Cofounder's authority under Section 3 or Section 4;
Conduct that is the basis for a Section 10.3 involuntary-removal finding against the Cofounder seeking indemnification.

Expense advancement: Reasonable defense costs may be advanced from Company funds upon the Cofounder's written undertaking to repay if it is later determined that indemnification was not permitted under this Section. Advancement requires Tier 2 Cofounder approval (Section 4.2) with the affected Cofounder recused.

Duration: This interim hold-harmless covers acts or decisions occurring during the pre-incorporation period and survives both incorporation and the Cofounder's departure with respect to acts occurring during their tenure.

9.5.2 Post-Incorporation Indemnification Commitment

At incorporation, the Cofounders commit that the Company's formation documents (charter, bylaws, operating agreement, or equivalent) shall include, and shall not thereafter be amended to remove or materially narrow:

Mandatory indemnification of all directors, officers, Cofounders, and employee-owners to the maximum extent permitted by California Corporations Code §317 (or the equivalent statute for the chosen entity form — e.g., §17704.08 and §17704.09 for a California LLC) for actions taken in good faith and in a manner reasonably believed to be in the Company's best interest;
Mandatory advancement of expenses for defense of covered proceedings, subject to a written undertaking to repay if indemnification is ultimately unavailable;
Exculpation from monetary liability for good-faith decisions to the fullest extent permitted by law, with carve-outs matching those in §9.5.1;
Directors & Officers (D&O) insurance procured as soon as the Company can afford it, with coverage levels reviewed annually. D&O insurance is not required pre-revenue; it becomes mandatory once the Company meets the Phase 1 revenue trigger under Section 6.3. Failure to maintain D&O coverage once the trigger is met is a material governance breach.

Weakening any of the above — including reducing coverage limits materially, narrowing covered persons, or removing mandatory advancement — is a Tier 2 decision under Section 4.2 and, because it weakens a protection that employee-owners rely on when accepting their roles, separately requires Mission Arbiter review under Section 9.4.

9.5.3 Carve-outs Apply at Both Stages

The carve-outs listed in §9.5.1 apply equally to the post-incorporation indemnification commitment. Indemnification under this Agreement or any successor governance document cannot shield:

A Cofounder found to have engaged in self-dealing or concealed conflicts of interest (Section 12.2);
A Cofounder found to have manipulated expenses (Section 11.2);
A Cofounder in a Section 10.4 buyback dispute where the underlying conduct was itself the basis for involuntary removal;
Any act that would violate an Immutable Right.

9.5.4 Disputes Over Indemnification Eligibility

Disputes over whether a particular act qualifies for indemnification — e.g., whether conduct was "good faith," whether it fell within the scope of role and authority, or whether a carve-out applies — are resolved by the independent arbiter under Section 10.6, not by Cofounder vote. This prevents a Cofounder from using their own vote to indemnify themselves and avoids the deadlock risk of asking a Cofounder group to adjudicate a dispute between its members. The arbiter's determination is binding on the Cofounders and the Company.

10. Departure & Separation

10.0 Definition of Material Breach

Throughout this agreement, "material breach" refers to a violation that is substantial enough to undermine the purpose of this agreement or cause significant harm to the Company, its mission, or its stakeholders. A material breach is not a minor oversight, missed deadline, or honest disagreement — it is conduct that a reasonable person would consider a fundamental failure of the commitments made here.

Examples of material breach include, but are not limited to:

Undisclosed conflicts of interest that influenced a Company decision (Section 12.2)
Deliberate falsification of contribution logs, financial records, or expense reports
Unauthorized disclosure of confidential information (Section 8)
Misappropriation of Company funds, IP, or assets
Revenue suppression or expense manipulation to undermine profit sharing (Section 11.2)
Retaliation against an employee-owner for voting, petitioning, or exercising governance rights
Failure to disclose side arrangements in connection with a sale or acquisition (Section 4.1, Tier 2)
Removing a Cofounder without following the required accountability process (Section 12.4)

Examples that are NOT material breach:

Missing a contribution log deadline
Disagreeing with a business decision (even vehemently)
Underperformance addressed through the accountability process (Section 12.4)
Good-faith errors in judgment

Determination: Whether conduct constitutes a material breach is determined by the non-implicated Cofounders. A Cofounder accused of material breach may contest the determination through the dispute resolution process (Section 4.4) and the independent arbiter (Section 10.6).

10.1 Core Principle: Employee-Only Ownership on Departure

Lantern is employee-owned. When someone stops being an employee, they stop being an owner. This is non-negotiable — it's Immutable Right #1.

However, departing cofounders earned their vested equity through real work and sacrifice. They deserve fair compensation for it. The solution: mandatory buyback — the company buys back vested equity at fair value, so the departing person is made whole financially while ownership returns to active employee-owners.

No one walks away robbed. No one keeps ownership they're no longer actively building.

10.2 Voluntary Departure

A Cofounder may resign at any time with 30 days written notice. Upon departure:

Unvested equity is forfeited immediately
Vested equity is subject to mandatory buyback (Section 10.4)
All voting rights, governance participation, and profit sharing end on departure date
IP assignment remains in effect (Section 7)
Confidentiality obligations remain in effect (Section 8)
Company duties and access are terminated, and Company property is returned (Section 10.12)

10.3 Involuntary Removal

A Cofounder may be removed by unanimous vote of all other Cofounders for:

Material breach of this agreement
Failure to fulfill role responsibilities for 30+ consecutive days without approved leave
Actions that materially harm the Company, its reputation, or its mission
Conviction of a felony or crime of moral turpitude

Only Cofounders can initiate Cofounder removal. C-suite members, employee-owners, and the Mission Arbiter (Section 9.4) do not have the authority to initiate or unilaterally execute removal of a Cofounder. This protection exists because Cofounder status carries governance rights that no other role in the Company can grant or revoke.

Narrow exception — independent arbiter at 2 Cofounders: At 2 Cofounders, the independent arbiter under Section 10.6 is a required procedural gatekeeper in the removal decision — confirming the accountability process was followed and that removal grounds are substantiated, before the removal takes effect (see the 2-Cofounder edge case below). The arbiter does not initiate removal; one Cofounder does. But the arbiter's confirmation is required for the removal to take effect, giving them an effective veto. This is a structural check against the fact that at 2 Cofounders there is no other-Cofounder majority to serve as a check. The arbiter's authority here comes from Section 10.6, not Section 9.4.

The removed Cofounder's unvested equity is forfeited. Vested equity is subject to mandatory buyback (Section 10.4).

For-cause removal (material breach, harm to company, felony): Remaining Cofounders may, by unanimous vote, apply a buyback discount of up to 50% on the vested equity valuation. This is the sole exception to Tier 1 vested equity protections (see Section 4.1 — Tier 1 exception). It is not punitive — it reflects the damage caused. The departing Cofounder may contest the discount through the dispute resolution process (Section 4.4) and the independent arbiter (Section 10.6).

Edge case — when removal is structurally impossible:

At 2 Cofounders, "unanimous other Cofounders" is one person — which means one Cofounder can unilaterally remove the other. At 1 Cofounder, removal is impossible since there are no other Cofounders to vote. These situations create risk:

At 2 Cofounders: Removal still requires the accountability process (Section 12.4) to be completed first — one Cofounder cannot skip straight to removal. Additionally, at 2 Cofounders, the independent arbiter (Section 10.6) must be involved in the removal decision — not just as a post-hoc dispute resolver, but as a required participant. The removing Cofounder must present documented cause to the arbiter, who confirms the accountability process was followed and the removal grounds are substantiated, before the removal takes effect. This structural check prevents one person from acting as judge, jury, and beneficiary simultaneously. The employee-initiated accountability review (Section 12.4) also remains available as a check. If the remaining Cofounder removes the other without following this process, it constitutes a material breach of this agreement and the removed Cofounder may challenge the removal through the independent arbiter (Section 10.6).
At 1 Cofounder: The sole Cofounder cannot be removed through this agreement. However, structural protections remain: Immutable Rights cannot be violated, Tier 2 decisions require C-suite consent, Tier 3 decisions require employee-owner consent, and C-suite cannot be fired without documented cause. If the sole Cofounder is acting against the Company's interests, any mission-critical decision they attempt is subject to Mission Arbiter review (Section 9.4), and employee-owners retain the right to pursue legal remedies for breach of this agreement.

10.4 Mandatory Buyback

When a Cofounder departs (voluntarily or involuntarily), the Company must buy back all vested equity. This is not optional — it ensures Lantern remains 100% employee-owned.

Valuation — What "Fair Market Value" Means:

Fair market value (FMV) is the value of the company (not salary). If the company is valued at $1M and you hold 20% vested equity, your buyback value is $200K. FMV is determined by (in order of preference):

Formula-based valuation (recommended) — a pre-agreed formula documented as an Addendum to this agreement. This should be defined with legal counsel as early as possible to avoid disputes. Common approaches:
- Revenue multiple: Company value = annual revenue × agreed multiplier (e.g., 3–5×)
- Asset-based: Net assets + IP value (useful pre-revenue)
- Comparable company: Based on valuations of similar-stage startups
Mutual agreement between departing Cofounder and remaining Cofounders
Independent third-party valuation — if no formula exists and mutual agreement fails. The cost of the third-party valuation is paid by the Company upfront and then split equally — the departing Cofounder's share is deducted from their buyback payout.

Pre-revenue buyback valuation:

⚠️ COFOUNDERS: REVIEW BEFORE SIGNING. Pre-revenue buyback valuation is one of the hardest problems in this agreement. The company has no revenue, no market value, and potentially no cash — but a departing cofounder did real work that deserves fair compensation. The primary method (documented deliverables) and fallback formula below need to be discussed and agreed upon by all cofounders. The fallback formula options are presented for discussion — select one and remove the others before execution.

If a Cofounder departs while the company is pre-revenue (no compensation trigger met), traditional FMV methods don't produce meaningful numbers. The buyback value is determined as follows:

Primary method — Documented deliverables:

Buyback value is assessed based on the departing Cofounder's proven, documented contributions as recorded in their contribution log (Section 12.3). This is why contribution logging matters — it's not busywork, it's the basis for your pre-revenue buyback.

Deliverables are evaluated by the remaining Cofounders and the departing Cofounder together, considering:

Features built, shipped, or in progress
Business relationships established (merchant partnerships, user acquisition channels)
Revenue-generating infrastructure created
Design, branding, or IP assets produced
Operational systems or processes implemented

Both parties must agree on the deliverable-based valuation. If they cannot agree, the fallback formula applies.

Fallback formula — select ONE before signing:

If mutual agreement on deliverable value cannot be reached, the buyback value defaults to a formula. The cofounders must agree on which formula to use before signing. Each option represents a different philosophy about what pre-revenue work is worth:

Option A — Vested % × living wage floor:Vested percentage of equity grant × annual living wage floor (Section 6.4)
Example: 37.5% vested × $120K living wage = $45,000
Pros: Values the departing cofounder's time at what the company aspires to pay. Cons: The company hasn't proven it can pay anyone this rate — salary doesn't start until $100K MRR. This could create a note the company can't realistically service.

Option B — Flat monthly rate × months vested:Agreed monthly rate × number of months vested
Example: $3,000/month × 18 months vested = $54,000Example: $1,500/month × 18 months vested = $27,000
Pros: Simple, predictable, doesn't tie to a salary benchmark the company hasn't reached. Monthly rate is set at signing so both sides know the number in advance. Cons: Doesn't scale with the living wage floor. Rate must be agreed upfront.
If selected, agreed monthly rate: $______/month

Option C — Vested % × documented expenses:Vested percentage of equity grant × total personal expenses the departing cofounder incurred for the Company (documented in Exhibit B and expense records)
Example: 37.5% vested, cofounder spent $8,000 on tools/hosting/travel = $3,000
Pros: Only values what was actually spent — no speculation about future value. Cons: Could produce a very low number ($0 if the cofounder incurred no personal expenses). Doesn't value time or deliverables at all.

Option D — Nominal acknowledgment: A fixed amount acknowledging the contribution without attempting to value it: $______
Example: $5,000 flat regardless of tenure or deliverables
Pros: Simplest possible approach. No disputes about formula. Cons: May feel unfair to a cofounder who contributed significantly. Doesn't scale with time invested.

Selected fallback formula: ____________________ (Write the selected option letter and any agreed parameters)

Cap on pre-revenue buyback:

The buyback value under the deliverable-based method cannot exceed 2× the fallback formula amount. This gives the deliverable method room to reward meaningful contributions above the formula baseline while preventing inflated valuations that a pre-revenue company cannot support. If the deliverable-based negotiation cannot reach agreement, the fallback formula applies as the default — it is the floor, not the ceiling.

The honest reality: Pre-revenue, the Company almost certainly has no cash to pay a buyback immediately. The buyback amount is documented as a promissory note (see below) with a 5-year maximum payment window. The departing Cofounder is owed the full amount — the question is when the money arrives, not whether it's owed. Milestone-triggered payments ensure money flows as the Company starts generating revenue.

Multiple departures: If more than one Cofounder departs pre-revenue, outstanding promissory notes are paid in the order they were issued (first out, first paid). Total annual payments across all outstanding notes cannot exceed 25% of the Company's annual revenue once revenue exists. If this cap is reached, payment timelines extend proportionally — but all notes must still be satisfied within their respective 5-year windows.
Disputes: If the departing Cofounder believes the remaining Cofounders are gaming the process (e.g., delaying revenue milestones, structuring expenses to avoid triggering payments), the dispute goes to the independent arbiter (Section 10.6)
Promissory note option: If the Company has no cash, the buyback obligation is documented as a promissory note with simple interest at the mid-term Applicable Federal Rate (AFR). The AFR is a minimum interest rate published monthly by the IRS — using it ensures the note is treated as a legitimate debt instrument for tax purposes rather than a taxable gift or compensation event. The IRS publishes three AFR tiers based on note term: short-term (≤3 years), mid-term (>3 to ≤9 years), and long-term (>9 years). Because this note has a contractual 5-year payment window, the mid-term AFR applies. The rate used is the mid-term AFR in effect on the date the note is issued, locked for the life of the note — even if the 25% annual revenue cap (Section 10.4) extends actual payment beyond 9 years, the originally locked mid-term rate continues to govern. The note includes milestone-triggered payments:
- 25% of note value due within 90 days of the Company's first funding event
- 25% of note value due within 90 days of the Company reaching the compensation trigger (MRR $10,000+)
- Remainder follows the standard structured payment schedule
- All payments must still complete within the 5-year maximum window
Promissory note — what happens if the Company fails: If the Company dissolves or ceases operations before the promissory note is fully paid:
- The remaining note balance is a senior creditor claim against all dissolution assets (equipment, IP, domain, remaining cash)
- If dissolution assets are insufficient to cover the note, the remaining balance is written off — the departing Cofounder accepts the loss. There is no personal liability for remaining Cofounders (the obligation is the Company's, not individual Cofounders').
- However, if dissolution assets are distributed to remaining Cofounders (equity distribution) while a note remains unpaid, the note must be satisfied first — no Cofounder receives dissolution proceeds while a departed Cofounder's note is outstanding.
- If the Company's IP or assets are acquired (even in a distressed sale), note obligations transfer to the acquiring entity or must be satisfied from sale proceeds before any equity distribution.

Payment timeline — 5-year target:

All buyback payments should be completed within 5 years from the departure date. This is the standard target. The one exception: if the 25% annual revenue cap (see below) limits what can be paid per year, the timeline extends until the full amount is satisfied — the departing Cofounder is never shorted, but the Company is protected from payouts that would cripple operations. Within the payment window, the structure flexes based on what the company can support:

Company Situation	Payment Terms
Company can afford lump sum	Full payment within 90 days of departure
Company can afford structured payments	Minimum 10% paid within 90 days. Remaining balance paid in monthly installments over up to 5 years from departure date, with simple interest at the mid-term Applicable Federal Rate (AFR) in effect on the issuance date, locked for the life of the note.
Company is pre-revenue / no cash	Payment deferred until compensation trigger (Section 6.3) is met, then follows structured monthly payments. The 5-year clock still starts on the departure date — deferral time counts against the window. Departing Cofounder receives no equity, no voting rights, and no profit sharing during the deferral — only the contractual right to be paid.

Flexible payments within the fixed window:

The monthly payment amount is not required to be equal. The Company and departing Cofounder agree on a payment schedule at time of departure that may include:

Smaller payments in early months (when the company is smaller)
Larger payments as revenue grows
Lump-sum catch-up payments when the Company hits milestones

The only hard rules: minimum 10% within 90 days, interest accrues on the unpaid balance, and 100% must be paid by the 5-year mark (unless extended by the 25% annual revenue cap).

What happens at the 5-year mark:

If the full buyback has not been paid by the 5-year anniversary of departure and the 25% annual revenue cap is not the cause, the remaining balance becomes immediately due in full. If the Company cannot pay, it is treated as a default (see payment security below).

If the 25% cap is the reason the balance remains, payments continue under the same terms (with interest accruing) until fully satisfied. The obligation does not expire — it extends until paid.

Payment security:

The buyback obligation is a senior debt of the Company — it must be paid before any profit distributions to employee-owners
Payment schedule documented in writing at time of departure, reviewed annually
If the Company misses 3 consecutive payments, the departing Cofounder may accelerate the full remaining balance (entire amount becomes due immediately)
If the Company dissolves before buyback is complete, the departing Cofounder's remaining buyback balance is treated as a creditor claim against dissolution assets (paid before equity distributions)

Returned equity:

Bought-back equity returns to the employee pool (not to individual remaining Cofounders)
Remaining Cofounders do not personally benefit from a departure — the company does
This prevents perverse incentives to push someone out for equity gain

Cap on total annual buyback payments:

Total buyback payments across all departed Cofounders in any given year cannot exceed 25% of the Company's annual revenue. This caps how much flows out the door per year — not how much is owed.
Minimum annual payment: Regardless of the 25% cap, the Company must pay at least $5,000 per year (or the remaining note balance, whichever is less) on each outstanding promissory note once the Company has any revenue. This prevents a scenario where low revenue combined with the 25% cap produces payments so small that interest accrues faster than the principal is repaid.
If the 25% cap limits what can be paid in a given year, the remaining balance carries forward with interest and the payment timeline extends beyond the standard 5-year window until the full amount is satisfied
Payments are allocated in FIFO order — the earliest departure's note is prioritized first

Timeline extension — only to satisfy obligations:

When the 25% annual revenue cap forces a payment timeline beyond 5 years, the extension exists solely to satisfy the outstanding buyback obligation. Specifically:

The extended timeline does not grant the departing Cofounder any additional rights — no equity, no voting, no profit sharing, no governance participation. They are a creditor, not a stakeholder.
Interest continues accruing on the unpaid balance at the locked mid-term AFR rate for the life of the note (the rate does not reset to long-term AFR if the timeline extends past 9 years — it remains the originally issued mid-term rate)
The Company must apply the full 25% allocation each year until all outstanding notes are satisfied — it cannot voluntarily reduce payments below the cap to stretch the timeline further
Annual payment schedules are reviewed each year and documented in writing. The departing Cofounder has the right to review the Company's revenue figures (limited to what's needed to verify the 25% calculation) to ensure the cap is being applied honestly.
If the Company's revenue grows, payments grow proportionally — the 25% cap accelerates payoff naturally as the Company scales

Mass departure (≥50% of Cofounders within 90 days):

If half or more of the Cofounders depart within a 90-day period, it signals the Company may not be viable as a going concern. Rather than saddling the remaining Cofounder(s) with unsustainable debt:

A mandatory dissolution review is triggered within 30 days of the last departure. The remaining Cofounder(s) must make a documented, good-faith assessment of whether the Company can continue operations and service the outstanding buyback obligations.
If continuing: The remaining Cofounder(s) document a written plan showing how the Company will operate and service the notes. The 25% annual revenue cap and FIFO ordering apply as normal. The plan is shared with all departing Cofounders holding notes.
If dissolving: Standard dissolution procedures apply — outstanding notes are treated as senior creditor claims against all Company assets (paid before any equity distributions to remaining Cofounders). See "Promissory note — what happens if the Company fails" above.
No obligation to continue: The remaining Cofounder(s) are not required to keep the Company alive solely to service buyback debt. If the Company is not viable without the departed Cofounders, dissolution is the honest and fair outcome — everyone takes their share of whatever assets exist, notes are settled to the extent possible, and the remainder is written off.

How governance scales with Cofounder count:

Three simple rules that work at any size:

Cofounder supermajority = 75% of all Cofounders (rounded up). This is the threshold for major decisions (Section 4.2). It scales naturally — 3-of-4, 4-of-5, 5-of-6, 6-of-8, etc.
Override and removal = unanimous agreement of all other Cofounders (always)
Immutable Rights and Tier 3 employee-owner consent thresholds = unchanged regardless of Cofounder count (the Tier 3 voter class composition still evolves with roster — see Section 3, "Effect on governance gates")

New Cofounders admitted under Section 5.4 receive full governance rights — there is no "junior cofounder" status.

When checks break down (below 3 Cofounders):

2 Cofounders: 75% rounds up to both — supermajority is effectively unanimity. Deadlocks on supermajority decisions are resolved by C-suite majority vote (if C-suite exists). Tier 2 requires both Cofounders — no override path. The Tier 2 override mechanism in Section 4.1 is suspended at 2 Cofounders: because "unanimous of all other Cofounders" reduces to a single person (the non-blocking Cofounder), applying the override as written would let one Cofounder unilaterally override the other — an absurd result that inverts the purpose of the check. At 2 Cofounders, a Tier 2 block stands; the path forward is mediation and revised proposal under Section 4.4, not unilateral override. The override mechanism is restored once there are 3 or more Cofounders (so that "all other Cofounders" is at least 2 people and true collective override is possible).
1 Cofounder: Tier 2 decisions require C-suite majority consent. The sole Cofounder cannot fire C-suite without documented cause and the accountability process (Section 12.4).
Below 3: The remaining Cofounders have an obligation to restore multi-person governance — either by admitting a new Cofounder or hiring C-suite leadership.

Governance succession — gradual transition, not a cliff:

Governance authority shifts incrementally as the Cofounder/C-suite ratio changes, not as a single event. The Tier 2 dual-gate structure (Section 4.2) is what enables this gradient: C-suite hold a majority-vote Tier 2 gate from the moment they are hired, and Cofounders hold the supermajority Tier 2 gate until the last of them departs. The following principles apply through the full arc:

Immutable Rights survive. The 10 Immutable Rights are constitutional — they are not tied to the Cofounders personally and cannot be dissolved by their departure. Any successor governance body is bound by them.
Tier 2 dual-gate scales with team composition. While both Cofounders and C-suite exist, both gates apply: Cofounder 75% supermajority AND C-suite majority. As Cofounders depart one by one, the Cofounder gate remains at 75% of remaining active Cofounders — it does not relax. The C-suite gate remains at majority.
When all Cofounders have departed, the Cofounder gate becomes inapplicable (zero voters) and only the C-suite gate remains. At that point, the C-suite gate rises from majority to 75% supermajority, matching the level of protection Cofounders previously provided. This preserves the "broad consent for major decisions" principle across eras.
Cofounder-only prerogatives transfer to C-suite post-Cofounder. The Cofounder-only decisions in Section 4.2 (admitting new Cofounders, Cofounder removal) no longer apply once the class is empty. Their post-Cofounder analogues (admitting and removing C-suite) are governed by the Operating Agreement under the principles in Section 3.
Tier 1 protections transfer. C-suite members and employee-owners retain the same Tier 1 protections on their own equity — no one can claw back vested equity through governance decisions, in any era.
Tier 3 is unchanged. The Tier 3 voter class (equity-granted employees who are not Cofounders and not C-suite) continues to provide the ⅔ consent check. In the post-Cofounder era, the Cofounder leg of the definition is moot (no Cofounders remain) but the C-suite exclusion does all the work: Tier 3 is the only remaining independent check on C-suite, its centrality grows, and so does the importance of maintaining a healthy non-executive equity-granted class. C-suite hiring and promotion under Section 5.8 must not be used in a way that systematically depletes the Tier 3 class.
Mission Arbiter review (Section 9.4) remains the primary mission-protection check in the absence of Cofounders. Because the Arbiter is invoked on demand — not seated as a standing body — no continuity problem is created by Cofounder departures; the successor governance body invokes the Arbiter when a triggering decision arises, using the pre-designated candidate or the ad-hoc fallback in Section 9.4.
If no C-suite exists (all Cofounders depart before Phase 2 or before C-suite is hired), the Company must either appoint interim leadership from existing employee-owners by employee-owner vote, or proceed with dissolution.

📌 Note: The detailed mechanics of governance succession (C-suite authority scope, voting thresholds, transition procedures) will be formalized in the Company's Operating Agreement upon incorporation. The principles above are binding commitments that the Operating Agreement must reflect.

10.5 No Outside Ownership — No Exceptions

To reinforce Immutable Right #1:

A departing Cofounder cannot retain equity, even if they prefer to
A departing Cofounder cannot sell, gift, or transfer equity to any third party
Remaining Cofounders cannot vote to let a departing Cofounder keep equity
The mandatory buyback cannot be waived, even by unanimous consent

The only relationship a departed Cofounder has with the Company is as a creditor (owed the buyback payment), not as an owner.

Spousal / community property transfers: California's community property regime creates a distinct transfer risk (divorce decrees awarding equity to a non-employee spouse). That risk is addressed separately in Section 10.10, which treats any court-ordered transfer to a non-employee spouse as an event triggering the same mandatory buyback rather than a permitted outside-ownership exception.

10.6 Independent Arbiter for Departure Disputes

Departure situations create inherent conflicts of interest — the remaining Cofounders are both the decision-makers and the opposing party. To address this, an independent arbiter is used for specific disputes:

When the arbiter is required:

Departing Cofounder contests a for-cause buyback discount (Section 10.3)
Parties cannot agree on fair market value or the deliverable-based valuation cap (2× the fallback formula, per Section 10.4)
Departing Cofounder alleges the removal process violated this agreement (e.g., skipped accountability steps)

Who serves as arbiter:

A mutually agreed-upon neutral third party — ideally selected and documented before any departure occurs (at signing or incorporation). Candidates:
- A startup attorney not representing either side
- A professional mediator with startup/business experience
- A trusted mentor or advisor agreed upon by all Cofounders
If no arbiter was pre-selected: each side (departing Cofounder vs. remaining Cofounders) nominates one candidate, and the two candidates jointly select a third person who serves as arbiter. If the two candidates cannot agree on a third within 30 days, either side may request appointment from the American Arbitration Association under its Commercial Arbitration Rules, and the AAA's appointee shall serve as arbiter.
The arbiter must have no financial interest in the Company or relationship with any Cofounder that would create bias

Pre-selected arbiter (fill at signing): Name: ____________________ Contact: ____________________ Backup: ____________________

Unavailability or conflict: If the pre-selected arbiter (and backup) are unavailable, conflicted, or decline to serve, the fallback nomination process above applies automatically. If that process deadlocks, the AAA appoints. No dispute resolution process in this agreement may be blocked by the absence of an arbiter — the AAA fallback ensures there is always a path to appointment.

Scope — this arbiter serves all disputes in this agreement:

The independent arbiter under this section is referenced throughout this agreement for multiple purposes. To be explicit, the same arbiter (or the same selection process) applies to:

Departure disputes (Section 10.4 — buyback valuation, for-cause discount contests)
Cofounder removal at 2 Cofounders (Section 10.3 — procedural gatekeeper)
Tier 2 cofounder override (Section 4.1 — advisory review at 3+ Cofounders, determinative at 2 Cofounders)
C-suite gate escalation (Section 4.2 — determinative review of C-suite block)
Mission Arbiter (Section 9.4 — may serve in this role by mutual agreement)
Any other dispute this agreement routes to "the independent arbiter"

If multiple disputes arise simultaneously, the same arbiter may handle all of them unless a conflict of interest arises on a specific matter, in which case the backup or AAA fallback applies for that matter only.

Arbiter's authority:

The arbiter's decision is binding on all parties for the specific dispute, except where this agreement explicitly designates the arbiter's role as advisory (e.g., Tier 2 cofounder override at 3+ Cofounders — see Section 4.1)
The arbiter may determine: fair market value, whether a for-cause discount is justified (and at what level), whether the removal process was properly followed, whether a block is substantive or obstructive
The arbiter may not override Immutable Rights, grant equity to non-employees, or modify the terms of this agreement

Cost:

The cost of the arbiter (fees, expenses, administrative costs) is split equally between the departing Cofounder and the remaining Cofounders. Pre-revenue, "the Company's share" means the remaining Cofounders personally split it equally among themselves. Post-revenue, the Company pays its share as an operating expense.
If the arbiter rules that one party acted in bad faith, the losing party pays 100% of arbiter fees

10.7 Disability & Death

Permanent Disability:

If a Cofounder becomes permanently disabled and can no longer fulfill their role responsibilities:

Full acceleration: 100% of the disabled Cofounder's unvested equity vests immediately. Disability is not a failure of commitment — it is an involuntary event, and the Cofounder should not be penalized for it.
Mandatory buyback applies: The Company must buy back the fully vested equity at fair market value per Section 10.4.
Disability determination: Permanent disability means the Cofounder is unable to perform their role responsibilities for a continuous period of 6 months or more, as confirmed by a licensed physician. The remaining Cofounders and the disabled Cofounder (or their representative) should attempt to reach mutual agreement before invoking the buyback.
Reasonable accommodation first: Before treating a health condition as permanent disability, the team must explore reasonable accommodations — reduced scope, modified responsibilities, temporary leave. Disability triggers only when accommodation cannot enable meaningful continued contribution.

Death:

If a Cofounder dies:

Full acceleration: 100% of the deceased Cofounder's unvested equity vests immediately.
Mandatory buyback applies: The Company must buy back the fully vested equity at fair market value per Section 10.4. The buyback obligation is owed to the deceased Cofounder's estate (or designated beneficiary if documented).
Payment terms: The estate receives the same payment terms as any departing Cofounder (Section 10.4), including the promissory note option if the Company cannot pay immediately. The estate is a creditor, not an owner — consistent with Immutable Right #1.
Beneficiary designation: Each Cofounder should designate a beneficiary for their buyback rights in Exhibit C (attached). If no beneficiary is designated, the buyback is payable to the Cofounder's estate per applicable probate law.

IP, confidentiality, and governance: IP assignment (Section 7) remains in effect permanently. Confidentiality obligations (Section 8) transfer to the estate or beneficiary for the remaining duration. All governance rights and profit sharing cease on the date of disability determination or death.

10.8 Technology & Trade Secret Protection (Replaces Non-Compete)

Lantern does not include a non-compete clause. California law generally renders non-competes unenforceable, and restricting someone's ability to work contradicts Lantern's values. Instead, we protect the technology and proprietary knowledge directly:

A departing Cofounder agrees NOT to do any of the following after departure:

Replicate Lantern's codebase (permanent, while information remains non-public) — copy, reproduce, or create derivative works from Lantern's source code, architecture, or proprietary algorithms. Because the codebase is a trade secret, this obligation persists for as long as the underlying material retains trade-secret status under applicable law.
Use trade secrets (permanent, while information remains a trade secret) — leverage non-public technical methods, encryption implementations, fraud detection systems, or proprietary data models learned at Lantern. Consistent with California trade-secret law, this protection continues indefinitely so long as the information qualifies as a trade secret (not generally known, subject to reasonable secrecy measures, and commercially valuable by virtue of its secrecy).
Misuse confidential business information (3 years) — use merchant data, user research, partnership terms, pricing strategies, or internal financial data obtained during their time as Cofounder. This duration is aligned with and governed by the general confidentiality obligation in Section 8.2; if Section 8.2 is later amended, the longer period controls.
Solicit Lantern's team (12 months) — actively recruit current Lantern employee-owners

What this does NOT restrict:

Working at any company, including competitors — you can get a job anywhere
Building apps, including social apps or venue-related products — using your own skills and public knowledge
Using general programming knowledge, design patterns, or publicly available technologies
Discussing Lantern publicly in general terms (unless it reveals confidential information)

Enforcement:

Violations are subject to equitable relief (injunction) and may result in forfeiture of remaining buyback payments as liquidated damages
The confidentiality obligations in Section 8 remain in effect independently (3-year duration per Section 8.2) and govern any overlap with item 3 above
Trade-secret protection (items 1 and 2) continues for as long as the information retains trade-secret status under applicable law, even after the 3-year confidentiality window lapses
IP assignment in Section 7 remains in effect permanently

Why this approach: A non-compete tries to prevent someone from competing. This clause protects the actual assets — the code, the trade secrets, the relationships. You can go build something else; you just can't take Lantern's proprietary tech with you to do it.

10.9 Non-Disparagement

Mutual obligation: For 24 months following a Cofounder's departure, both the departing Cofounder and the remaining Cofounders agree not to make public statements that are intentionally false or misleading and designed to harm the other party's reputation, business relationships, or professional standing.

What this restricts:

Fabricated or knowingly false claims about another Cofounder's conduct, competence, or character
Deliberate misrepresentation of the circumstances of departure
Statements intended to damage Lantern's relationships with users, merchants, partners, or investors

What this does NOT restrict:

Truthful statements, including honest accounts of why a Cofounder departed
Statements required by law, court order, or regulatory inquiry
Good-faith reviews or references when asked directly (e.g., a future employer asks about a departed Cofounder)
Internal discussions among remaining Cofounders or employee-owners about the departure
Legitimate criticism of the Company's products, business practices, or public-facing decisions (opinion is protected)

Enforcement: A Cofounder who violates this clause may have their remaining buyback payments suspended until the violation ceases and any false statements are retracted. Disputes about whether a statement violates this clause are resolved through the dispute resolution process (Section 4.4).

Why this is narrow: Overly broad non-disparagement clauses are used to silence people — that's not the intent here. This clause prevents deliberate reputational sabotage while preserving the right to speak truthfully. If the truth is unflattering, the solution is to act better, not to restrict speech.

The risk. In nearly every U.S. jurisdiction, equity earned during a marriage may be subject to a marital property claim by the non-employee spouse in divorce, separation, or death. The mechanism varies — community property states recognize an automatic 50% interest; common-law / equitable-distribution states reach a similar outcome through court-ordered division of marital property — but the result is the same: without protection, a court order could place Company equity in the hands of someone who has never been an employee-owner. That directly conflicts with Immutable Right #1 (employee-only ownership) and the transfer restrictions in Section 10.5.

This Agreement is governed by California law per Section 14, and the Company is intended to be a California entity. California is a community property state (see California Family Code §760), which gives the clearest statutory basis for the mechanics below. The consent requirements apply to every married Cofounder regardless of state of residence; the specific marital-property rules of the Cofounder's and spouse's home jurisdiction are a matter for counsel review at incorporation.

Presumptive community interest. Unless modified by a valid prenuptial or postnuptial agreement with independent counsel for both spouses, each married Cofounder's equity is presumed to be community property, and the non-employee spouse holds a presumptive 50% community property interest in the economic value of that equity. This presumption does not confer governance rights, record ownership, or any voting interest on the non-employee spouse under this Agreement.

Spousal consent required for every married Cofounder. At or before formal equity issuance (at incorporation, or earlier if required by counsel), each married Cofounder must cause their spouse to sign the Spousal Consent Form in Exhibit E. By signing, the spouse:

Acknowledges the terms of this Agreement, including the transfer restrictions (Section 10.5), mandatory buyback (Section 10.4), vesting schedule (Section 5.2), and Immutable Rights (Section 9.1);
Agrees that any community property interest they hold in the Cofounder-spouse's equity is fully subject to and bound by this Agreement, including all transfer restrictions and buyback obligations;
Agrees that in divorce, legal separation, annulment, or death of the Cofounder-spouse, the non-employee spouse shall not receive record ownership, voting rights, or any governance interest in the Company. Any community property interest is limited to the economic value of the Cofounder-spouse's vested equity, determined under Section 10.4;
Agrees that any court order purporting to transfer equity (rather than cash value) to the non-employee spouse automatically triggers the Company's mandatory buyback under Section 10.4; the non-employee spouse accepts cash (or a promissory note on the terms offered to any departing Cofounder) in exchange for the interest — not equity;
Waives any claim to compel the Company to issue equity certificates to them or recognize them as a Company owner.

Unmarried Cofounders. Each unmarried Cofounder must sign the unmarried acknowledgment in Exhibit E, representing that they are unmarried as of the signing date and agreeing that if they marry while holding Company equity, they will obtain a signed Spousal Consent Form from their spouse within 30 days of the marriage and provide a copy to the Company. Failure to deliver the consent within that window is a material breach under Section 10.0. The 30-day consent obligation in this paragraph applies to any marriage or registered domestic partnership entered into while the Cofounder holds Company equity, regardless of the Cofounder's marital status at signing — including a Cofounder who was married at signing and later divorces and remarries, or who enters a registered domestic partnership.

Marital status disclosure at signing. Each Cofounder must disclose current marital status in Part 1 of Exhibit E. Material misrepresentation of marital status (for example, concealing a marriage to avoid the consent requirement) is a material breach under Section 10.0.

If a spouse refuses to sign. A married Cofounder who cannot obtain a signed consent before incorporation must either:

(a) Execute a valid postnuptial agreement (with independent counsel for both spouses) confirming the Cofounder's equity is the Cofounder's separate property and not community property; or
(b) Delay incorporation of the equity grant until consent or a postnup is in place; or
(c) Decline the equity grant and step into an employee-only role with no cofounder equity.

Equity cannot be issued to a married Cofounder absent one of (a)–(c). This is a protection for the Company and for the other Cofounders — not a penalty on the married Cofounder — and it preserves Immutable Right #1 against later collateral attack through family law.

Interaction with Section 10.7 (Death). In the death of a married Cofounder, the spouse's community property interest in the vested equity is paid out as cash under Section 10.4, not transferred as equity. The spouse may be named as the designated beneficiary in Exhibit C to receive the buyback proceeds directly; if no beneficiary is designated, the proceeds flow to the estate and are distributed per probate law.

Out-of-state Cofounders. The consent is a contractual instrument binding the non-employee spouse under California law (per Section 14) regardless of where the Cofounder or spouse resides, but the spouse's underlying marital property rights continue to be governed by their own jurisdiction's law. For any Cofounder (or spouse) residing outside California — and for any registered domestic partnership, civil union, or foreign marriage — counsel must review the applicable marital property regime at incorporation and add jurisdiction-specific modifications (formalities, notarization, translation, independent-counsel requirements) before the consent is signed. A Cofounder who relocates during the vesting period in a way that changes the applicable regime must notify the Company within 30 days so counsel can determine whether a supplemental consent is needed.

Independent counsel for the non-employee spouse. Across all jurisdictions, the strongest protection against later attack on the consent is that the non-employee spouse had the opportunity — and ideally exercised it — to consult independent counsel before signing. The form in Exhibit E includes a disclosure field for this.

Counsel review required. The Spousal Consent Form in Exhibit E is a preliminary drafting aid, not final legal instrumentation. Upon incorporation, Company counsel must prepare the final spousal consent consistent with applicable law (California Family Code for California-resident Cofounders; the home-jurisdiction equivalent for anyone else) and current market practice for early-stage equity grants.

10.11 Bankruptcy & Creditor Claims (Deemed Departure)

Like the marital-property risk addressed in Section 10.10, a Cofounder's personal bankruptcy or insolvency can expose their equity to external claims — a bankruptcy trustee, judgment creditor, levying sheriff, or receiver could reach the equity and conflict with Immutable Right #1 (employee-only ownership) and the transfer restrictions in Section 10.5.

Trigger events. Any of the following is a "deemed departure" event:

The Cofounder files, or has filed against them, a voluntary or involuntary petition under the U.S. Bankruptcy Code (or analogous insolvency proceeding under state or foreign law)
A creditor obtains a judgment lien, levy, garnishment, charging order, attachment, or writ of execution against the Cofounder's equity
A receiver, trustee, conservator, or similar fiduciary is appointed with authority over the Cofounder's property, including the equity
The Cofounder makes a general assignment for the benefit of creditors

Effect. A deemed-departure event is treated as a voluntary departure under Section 10.2: unvested equity is forfeited per Section 5.3, and vested equity is subject to mandatory buyback under Section 10.4 at fair market value. Buyback proceeds are paid to the bankruptcy estate, the Cofounder, or the levying creditor as directed by the applicable court or law — the Company's obligation is to pay cash (or a promissory note on the standard terms), not to transfer equity.

Effect on role and status. Because the event is treated as a voluntary departure, the Cofounder's operational role, governance rights, and employee-owner status end on the departure date on the same terms as any other departure under Section 10.2 — including return of Company property and access termination under Section 10.12. This is a clean break by design: the post-buyback person is no longer a Cofounder or an employee of the Company. If, after the deemed departure, the remaining Cofounders wish to re-engage the former Cofounder in a non-equity, non-cofounder employee capacity (e.g., as a contractor or hourly employee on a specific project), they may do so through the Company's standard hiring process subject to Section 4.2 and any applicable employment-law considerations; re-engagement does not restore Cofounder status, governance rights, or equity, and is not an entitlement of the departed Cofounder.

Disclosure obligation. A Cofounder must notify all other Cofounders in writing within 10 days of any filing, service, or notice of a triggering event. Failure to disclose is a material breach under Section 10.0.

Counsel review required. Forced-buyback provisions are generally enforceable against a bankruptcy estate when they preserve value at fair market value (rather than voiding the equity outright), but specifics depend on current case law. Upon incorporation, Company counsel must confirm the final Operating Agreement includes bankruptcy and creditor provisions aligned with current enforceability standards under the U.S. Bankruptcy Code and applicable state insolvency law.

10.12 Return of Company Property & Access Termination

On the departure date, the departing Cofounder must return all Company property and surrender all Company access. The tools, credentials, and data that enabled the Cofounder's role belong to the Company — not the person — and all of it must be back in Company control before the Cofounder walks away.

Physical property — return within 7 days of the departure date:

Company-issued laptops, phones, tablets, monitors, peripherals, and chargers
Hardware security keys (YubiKey, Titan, etc.) and any Company-issued authenticators
Office keys, access cards, and badges
Any other equipment, prototypes, or supplies purchased with Company funds or provided for Company use

Digital assets — return or destroy within 7 days of the departure date:

All Company source code, designs, product specifications, and work product held outside Company-controlled systems (personal devices, personal cloud accounts, local drives, external storage)
All Company documents, financial records, user data, merchant data, partnership terms, and internal correspondence in the Cofounder's personal possession
Confidential information and trade secrets covered by Section 8 and Section 7, in any form or medium
Physical notebooks, printed materials, and personal notes to the extent they contain Company confidential information; general personal journals remain the Cofounder's property, but Company-relevant content must be returned or destroyed

The departing Cofounder must first deliver a copy of any Company material not already in Company-controlled systems (handoff), then permanently delete local copies and empty device trash/recovery folders.

Access termination — effective on the departure date:

Authentication credentials — all Company-issued logins (email, Firebase projects lantern-app-dev and lantern-app-prod, Cloudflare, GitHub organization, Google Workspace, Google Cloud, domain registrar, DNS, admin portals, vendor accounts, billing accounts, SSO, VPN). The departing Cofounder must not attempt to log in, authenticate, or otherwise use Company systems after the departure date.
Infrastructure membership — removal from all Company Firebase projects, Cloudflare accounts, GitHub org, Google Cloud projects, payment processors, and any other Company production or development environment.
Communication channels — removal from Company Slack, Discord, email distribution lists, project management tools, and internal documentation platforms.
Signing and financial authority — revocation of any signing authority, payment authorization, or financial account access (banking, vendor accounts, expense cards).

Shared-secret rotation. The remaining Cofounders are responsible for rotating all shared secrets (API keys, service account credentials, database passwords, signing keys, webhook secrets, OAuth client secrets) within 48 hours of the departure date, regardless of whether the departing Cofounder's individual credentials have been revoked. This is required even for amicable departures — inadvertent backups, browser syncs, and past device compromises can expose secrets the departing Cofounder never intended to retain.

Certification. Within 7 days of the departure date, the departing Cofounder signs a short Property Return & Access Termination Certification confirming that (a) all Company property has been returned, (b) all Company data in personal possession has been returned or permanently deleted, (c) no backup copies have been retained, and (d) the Cofounder will not attempt to access Company systems after the departure date. The certification is retained with the buyback records.

Reasonable carve-outs. The departing Cofounder may retain personal copies of (i) this Agreement and related personal legal documents, (ii) their own pre-existing IP as disclosed in Exhibit A, (iii) routine correspondence personally addressed to them, and (iv) their own contribution log (Section 12.3). Purely personal files stored on Company-issued devices (family photos, personal messages) will be returned to the Cofounder on reasonable request before the device is wiped; the Company will make a good-faith effort to preserve clearly personal content, but device reset proceeds no later than 30 days after the departure date regardless.

Damaged or unreturned property. If Company property is not returned within the 7-day window, the Company may, after written notice and a 14-day cure period, deduct the reasonable replacement cost (for hardware) or documented damages (for unreturned data or confidentiality breach) from outstanding buyback payments under Section 10.4. Willful retention of Company IP, source code, or confidential data is a material breach under Section 10.0 and Section 7/Section 8, and may trigger injunctive relief and forfeiture of remaining buyback payments as liquidated damages under Section 10.8.

Why this matters. A departing Cofounder who retains production credentials, source code, or infrastructure access can cause existential harm to the Company — intentionally or otherwise. Clean handoff protects everyone: the Company from breach and continuity risk, the remaining team from operational instability, and the departing Cofounder from later accusations of misuse. Scope the return narrowly to Company property and Company data; personal effects, personal journals, and pre-existing IP stay with the person.

11. Expenses & Financial Management

11.1 Pre-Revenue Expenses

Business expenses require prior approval from at least one other Cofounder for amounts over $100
All expenses documented with receipts
Shared expenses split equally unless otherwise agreed
A shared financial ledger/spreadsheet shall be maintained and accessible to all Cofounders
Any initial capital contributions made by a Cofounder must be documented in Exhibit B (attached), including amount, date, purpose, and repayment terms (if any)

11.2 Expense Integrity & Anti-Manipulation

Profit sharing is an Immutable Right — but "no profit" produces nothing to share. To prevent profit sharing from being undermined through expense manipulation:

No self-dealing through expenses. No Cofounder may direct Company funds to entities they own, control, or have a financial interest in without full disclosure (Section 12.2) and Cofounder supermajority approval. This includes consulting fees, service contracts, equipment purchases, or any arrangement where Company money flows back to a Cofounder or their associates.
Expenses must be legitimate and necessary. Operating expenses deducted before profit sharing must serve a genuine business purpose. Inflating expenses to suppress profit is a breach of this agreement.
Any Cofounder may challenge an expense. If a Cofounder believes an expense is unnecessary, inflated, or designed to reduce profit sharing, they may raise it for supermajority review. If 75% of Cofounders agree the expense is not justified, it is reversed or reclassified.
Revenue suppression is a breach. Deliberately delaying revenue, rejecting reasonable business opportunities, or structuring deals to channel revenue outside the profit-sharing formula constitutes a material breach of this agreement.
Quarterly expense review. As part of the financial transparency obligations (Section 11.4), all operating expenses are reported by category. Any Cofounder or employee-owner may request detailed documentation for any expense line item.

Why this matters: The profit-sharing formula is only as honest as the numbers that go into it. Protecting the formula without protecting the inputs is like locking the front door and leaving the windows open.

11.3 Funding & Investment

No Cofounder may accept investment or incur debt on behalf of the Company without unanimous consent
Any personal loans to the Company shall be documented in writing with clear repayment terms
External funding must align with the Shareholder-Lender Framework

11.4 Financial Transparency to Employee-Owners

Employee-owners hold equity and have Tier 3 voting rights on decisions that affect that equity. Informed consent requires informed voters. The Company shall provide quarterly financial reports to all employee-owners, including:

Revenue and expenses: Total revenue, operating expenses by category, and net profit/loss
Cash position: Current cash reserves, runway (months of operating expenses covered), and burn rate
Equity impact: Any pending or anticipated events that could affect equity value (funding discussions, acquisition interest, significant partnerships)
Compensation data: Total payroll, current living wage floor, profit sharing distributions (aggregate, not individual)
Debt and obligations: Outstanding debts, promissory notes, and financial commitments

Format: Written report, distributed to all employee-owners within 30 days of each quarter's end. Reports are retained as permanent records.

Q&A session: Each quarterly report is accompanied by an open Q&A session where any employee-owner can ask questions about the financials. Questions may be submitted anonymously. Cofounders must respond in good faith — "we can't share that" is only acceptable for legally privileged information (e.g., active litigation).

Why this matters: Financial transparency isn't a perk — it's a prerequisite for Tier 3 voting to function. Employee-owners voting on a sale, investment, or compensation change without seeing the books is democracy in name only.

12. Commitment, Accountability & Integrity

12.1 Commitment

Each Cofounder commits to:

Dedicated effort: Delivering on the contributions and responsibilities outlined in Section 3 (understanding flexibility is needed — life happens)
Communication: Maintaining fair, reasonable communication with fellow Cofounders. If a Cofounder is unreachable for an extended period (1–2 weeks with no response), the first response is a wellness check — not escalation. Life happens, and silence usually means someone is dealing with something. Reach out as a human first.
Transparency: Disclosing any conflicts of interest, outside commitments, or financial interests that may affect Lantern (see Section 12.2 — Conflict of Interest Policy)
Mission alignment: Acting in the best interests of Lantern and its mission, not personal gain
Integrity: Approaching disagreements with respect, honesty, and a genuine desire to find the best outcome for the Company

12.2 Conflict of Interest Policy

A conflict of interest exists when a Cofounder or employee-owner has a personal financial, professional, or relational interest that could — or could reasonably appear to — influence their judgment on Company decisions.

What must be disclosed:

Financial interests: Ownership, investment, or profit-sharing in any company that competes with, supplies to, or partners with Lantern
Outside employment or consulting: Any paid work for another entity, especially in the same industry
Relationships with vendors or partners: Personal relationships with individuals at companies Lantern does business with
Side projects: Any project that overlaps with Lantern's product area, uses Lantern resources, or could compete with Lantern (open-source contributions to unrelated projects are not conflicts)
Acquisition-related arrangements: Retention packages, employment offers, equity in an acquiring company (also covered by the Tier 2 full disclosure requirement)

When to disclose:

Proactively: Within 7 days of the conflict arising (e.g., you accept a consulting gig, invest in a competitor, start a side project in the same space)
Before any affected decision: If a conflict is relevant to a pending vote or decision, it must be disclosed before discussion begins — not after
Annually: All Cofounders submit a written conflict-of-interest statement annually, even if the answer is "none"

Disclosure format: Written, shared with all Cofounders.

📌 Note: Conflict-of-interest disclosure requirements for employee-owners (frequency, format, and reporting chain) will be formalized in the Company's employee governance documents upon incorporation.

What happens after disclosure:

Disclosure does not automatically disqualify someone from participating in a decision. The other Cofounders (or employee-owners, for Tier 3 votes) assess whether the conflict is material enough to require recusal.
If a majority of the non-conflicted participants determine recusal is warranted, the conflicted individual must abstain from the vote but may still participate in discussion to provide context.
The conflict and the recusal decision are documented in the decision record.

Consequences for failure to disclose:

Undisclosed conflicts discovered after the fact constitute a material breach of this agreement.
Any decision influenced by an undisclosed conflict may be revisited and re-voted by the non-conflicted participants.
Repeated or egregious failures to disclose may be treated as cause under the accountability process (Section 12.4) and, in extreme cases, may constitute grounds for for-cause removal (Section 10.3).
Affected parties (Cofounders or employee-owners) may pursue legal remedies including equitable relief and damages.

Safe harbor: Disclosing a conflict in good faith — even a significant one — is protected. No Cofounder or employee-owner shall face retaliation or penalty for disclosing a conflict. The policy punishes concealment, not the existence of conflicts.

12.3 Contribution Logging

All Cofounders maintain a contribution log — a shared, accessible record of work performed. This serves two purposes:

Transparency: Everyone can see what everyone else is doing
Accountability: Patterns of undercontribution become visible before they become crises

The log also serves as supporting evidence in disputes, pre-revenue departures, or accountability conversations — not as the basis for calculation, but as a record that active contribution occurred.

What to log: Anything that captures what you're working on. Meeting notes, decisions made, things shipped, conversations had, problems solved. There's no required format — the goal is a honest, readable record of activity, not a formal report.

Format: Whatever the team agrees on — this can be as simple as monthly huddle meeting notes where each Cofounder shares what they've been working on. It could also be a shared document, project management tool, Notion, Slack thread, or git commits. The format doesn't matter; the habit does.

Logging frequency: Monthly is the standard cadence. Quarterly is acceptable for extenuating circumstances (personal crisis, health, travel). What matters is that actual contributions are documented — not when the documentation happens.

What matters is the work, not the log:

The contribution log exists to record contributions, not to be the contribution. A Cofounder who ships consistently but logs quarterly is in better standing than one who logs monthly but delivers nothing. The log is evidence of contribution — it is not a substitute for it.

Documentation discipline:

Multiple protections in this agreement depend on documented contributions. Specifically:

Months 7–12 cliff protection (Section 5.3): Vesting rounds up to 25% — documented deliverables support a higher buyback under the primary method.
Pre-revenue buyback (Section 10.4): The primary method is deliverable-based. Without documentation, you default to the fallback formula (vested % × living wage floor) — likely a lower amount.
Accountability (Section 12.4): Logs provide documented basis for raising — or defending against — underperformance concerns.

If a Cofounder consistently fails to document their work, these protections weaken — for everyone.

Gentle reminder: If a Cofounder goes longer than one quarter without logging, any other Cofounder may send a written reminder.
Mutual accountability: Contribution logs are visible to all Cofounders at all times. If someone notices gaps in another Cofounder's log, they should flag it promptly — it protects everyone.

12.4 Accountability Process (Underperformance)

If a Cofounder is consistently not meeting their commitments, the following process applies before removal can be considered. This protects both the team (from carrying dead weight) and the individual (from being blindsided):

Step 1 — Direct Conversation

Any Cofounder can raise the concern privately and directly
Goal: understand why — personal crisis, burnout, unclear role, loss of motivation
No formal documentation required at this step
Many issues resolve here with honest conversation
If the underperformance is due to personal crisis (health, family, financial hardship), the team must offer reasonable accommodation before escalating

Step 2 — Documented Expectations

If the issue persists, 2+ Cofounders raise it in a group setting
Specific, documented concerns (not vague — reference contribution logs and deliverables)
Written improvement plan shared with all Cofounders, including:
- What's expected and what's not happening
- What needs to change and by when (timeline agreed by all Cofounders — not a prescribed duration)
- What support the team will provide
The underperforming Cofounder has the right to propose alternative arrangements (reduced commitment with adjusted equity, temporary leave, role change)
Documented in writing and signed by all Cofounders

Step 3 — Improvement Period

Cofounder works against the improvement plan for the agreed timeline
Regular check-ins at a cadence the team agrees on
Good-faith effort expected from both sides — the team supports, the individual commits

Interim measures during Steps 2–3:

Once the written improvement plan (Step 2) is documented, the following measures apply:

Vesting pauses for the duration of the improvement period. If the Cofounder improves and the issue is resolved, the paused vesting time is credited back (they don't lose vesting time for a resolved issue). If they are ultimately removed, the vesting pause means they don't accumulate additional equity during the process.
Delegated authority is suspended — decisions in the underperforming Cofounder's focus area require approval from another Cofounder during the improvement period. This prevents someone who's checked out from making unilateral decisions that affect the Company.
Profit sharing continues normally — profit sharing is an Immutable Right and cannot be suspended, even during an improvement period.

Step 4 — Resolution

If improved: Issue closed. Paused vesting time is credited back. Delegated authority restored. No permanent record beyond the improvement plan. Everyone moves forward.
If not improved: The team may proceed to involuntary removal (Section 10.3), which still requires unanimous vote of the other Cofounders.

Key protections:

You cannot skip steps — a Cofounder cannot be removed for underperformance without completing Steps 1–3 first
The improvement plan must include specific, measurable expectations — not "do better"
Interim measures are automatically reversed if the issue is resolved — no lasting penalty for a rough patch that gets fixed

Employee-initiated accountability review:

The steps above describe the cofounder-initiated process. But employees need structural recourse when cofounders don't act — or are themselves the problem, or when a C-suite member is the subject of concern. Employee-owners may initiate an accountability review under the following conditions:

Who may be reviewed: Any Cofounder or C-suite member (once C-suite exists — i.e., from Phase 2 onward, see Section 3). The same petition process applies in both cases; only the reviewing body differs (see "Who conducts the review" below).
Threshold: A written petition signed by ⅓ of all employee-owners triggers a mandatory review. The denominator is all equity-holding employees (Cofounders, C-suite, and other employee-owners) minus the person under review — the subject is excluded from both the numerator and denominator. The petition must include specific, documented concerns — not general dissatisfaction.
Pre-distinct-class note: When the employee-owner class consists only of Cofounders (i.e., before any non-cofounder, non-C-suite employee holds equity — see Section 3), this mechanism is effectively redundant with the Cofounder-initiated process in Steps 1–4 above: the ⅓ petitioner pool is the other Cofounders themselves. The mechanism becomes substantive once non-cofounder employee-owners exist, giving rank-and-file equity holders an independent path to raise Cofounder or C-suite accountability concerns. The Cofounder-initiated process remains the primary accountability path in either era.
Scope: The review covers the same ground as Steps 1–4 above, but is initiated by the employee body rather than by peers. For Cofounder subjects, it may result in involuntary removal under Section 10.3; for C-suite subjects, it may result in removal under the C-suite removal protections in Section 3.
Who conducts the review:
- Cofounder subject (single): The non-implicated Cofounders conduct the review.
- Cofounder subject (multiple or all): An independent third party selected using the arbiter mechanism in Section 10.6 conducts the review. The Mission Arbiter (Section 9.4) may serve in this role by mutual agreement.
- C-suite subject (single): The Cofounders conduct the review (or, in the post-Cofounder era, non-implicated C-suite peers).
- C-suite subject (multiple, or all of C-suite in the post-Cofounder era): An independent third party selected per Section 10.6 conducts the review. This prevents C-suite from reviewing themselves when the petition scope eliminates an unconflicted peer quorum.
Obligation to act: Upon receiving a valid petition, the reviewing body must initiate the accountability process within 14 days. Failure to act is itself a governance failure that may be escalated to the independent arbiter (Section 10.6) or documented for legal proceedings. For C-suite petitions in the pre-Cofounder-era, this obligation rests on the Cofounders; post-Cofounder, on the non-implicated C-suite peers.
Outcome: The review follows Steps 2–4 above (formal check-in, improvement plan, resolution). Employee-owners who initiated the petition receive written updates on the outcome within 7 days of resolution.
No retaliation: Filing or signing a petition is a protected act. Any adverse action against a petitioning employee-owner (termination, demotion, reduced responsibilities, exclusion from decisions, reassignment of work, denial of advancement opportunities, or pay adjustments made in response to the petition) constitutes a material breach of this agreement. The anti-retaliation protection extends for 12 months after the petition is filed. This protection applies equally when the petition targets a Cofounder or a C-suite member; C-suite members retaliating against petitioners is itself grounds for C-suite removal under Section 3.
Bad-faith petitions: If a petition is determined to be filed in bad faith (fabricated concerns, personal vendetta with no documented basis), the reviewing body may dismiss it with a written explanation shared with all employee-owners. The bar for "bad faith" is high — genuine concerns that turn out to be unfounded are not bad faith.

Why ⅓ and not ½: The threshold is intentionally lower than a majority. Requiring ½ means a problem has to affect most of the company before it can be raised — by then the damage is done. ⅓ is high enough to prevent frivolous petitions but low enough that a meaningful minority can trigger a review before a problem metastasizes.

12.5 Pre-Revenue Sweat Equity Acknowledgment

All Cofounders understand and accept that:

There is no guarantee of financial return. Startups fail. Equity in a failed company is worth $0. This agreement structures how value is divided, but it cannot create value that doesn't exist.
Pre-revenue work is a bet. Every deliverable shipped without pay is a bet that the company will succeed. This agreement cannot eliminate that risk — only distribute it fairly.
The contribution log is your receipt. If the company fails, the log is the record of what you gave. If someone departs pre-revenue, the log is the basis for their buyback valuation floor.
Honest communication reduces risk. If the company is struggling, Cofounders commit to transparent discussion about pivoting, pausing, or dissolving — rather than letting the ship sink silently.

Each Cofounder signs below to acknowledge they understand the risks of pre-revenue sweat equity:

Cofounder	Initials	Date
_________	________	____
_________	________	____
_________	________	____
_________	________	____
_________	________	____
_________	________	____

13. Amendments

Amending this agreement is a Tier 2 (override) decision per Section 4.1. Any active Cofounder can block a proposed amendment, but the other Cofounders can override after the mandatory 14-day mediation process (see Tier 2 override rules). Departed or removed Cofounders have no amendment rights — their relationship to the Company is governed by the terms in effect at their departure. All amendments must be documented as written addenda with effective dates, signed by all consenting Cofounders.

14. Governing Law

This Agreement shall be governed by the laws of the State of California. Any disputes shall be resolved first through mediation (Section 4.4), and if unresolved, through binding arbitration in San Diego County, California. The cost of arbitration is split equally between the disputing parties per Section 4.4.

15. Severability

If any provision of this Agreement is found to be unenforceable, the remaining provisions shall continue in full force and effect.

16. Entire Agreement

This Agreement, together with the governance documents referenced herein, constitutes the entire understanding between the Cofounders regarding the subject matter herein. It supersedes all prior verbal agreements, understandings, and discussions.

Document hierarchy (in case of conflict):

If a provision in this Agreement conflicts with a referenced governance document, the following order of precedence applies:

Immutable Rights (IMMUTABLE_RIGHTS.md) — highest authority. No document, including this Agreement, may contradict the Immutable Rights.
This Cofounder Agreement — governs the founding team's rights, equity, and obligations. Controls over governance documents on cofounder-specific matters.
Operating Agreement (post-incorporation) — governs the Company's operational structure. Controls over governance documents on corporate matters not covered by this Agreement.
Governance documents (GOVERNANCE.md, DECISION_MAKING_AUTHORITY.md, ANTI_GREED_SAFEGUARDS.md, etc.) — provide framework and principles. Where they elaborate on topics covered by this Agreement without contradicting it, they are binding. Where they conflict with this Agreement, this Agreement controls.
Team Structure and business documents — informational and aspirational unless explicitly incorporated by reference.

📌 Note: Upon formal incorporation, legal counsel should review all referenced documents and reconcile any conflicts. The Operating Agreement will formalize this hierarchy with legally precise language.

Signatures

By signing below, each Cofounder acknowledges that they have read, understood, and agree to the terms of this Preliminary Cofounder Agreement.

Each Cofounder also records their individual vesting start date below, per Section 5.2. This is the anchor for that Cofounder's cliff, cliff-protection window, and 4-year vest — and it is intentionally recorded per person rather than shared across the team.

Cofounder 1:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Cofounder 2:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Cofounder 3:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Cofounder 4:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Cofounder 5:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Cofounder 6:

Signature: ____________________

Printed Name: ____________________

Date signed: ____________________

Vesting Start Date: ____________________

Exhibit A: Pre-Existing Intellectual Property

Each Cofounder must list any pre-existing IP they are contributing to or licensing to Lantern. This exhibit must be completed before signing this agreement — an empty or missing disclosure creates ambiguity about IP ownership that can become a serious legal liability later.

What to disclose:

Code, libraries, frameworks, or tools you built before Lantern that you're bringing into the project
Designs, branding assets, or creative work created before this agreement
Domain names, trademarks, or other IP assets you own that Lantern will use
Research, data sets, or methodologies developed independently that will be incorporated into Lantern

Contribution types:

Assigned — ownership transfers permanently to the Company. You no longer own this IP. Use this for IP that is core to Lantern's product and would create conflict if you retained ownership.
Licensed — you retain ownership but grant the Company a perpetual, royalty-free, non-exclusive license to use, modify, and distribute the IP as part of Lantern. Use this for IP you want to continue using independently (e.g., an open-source library you maintain).

If nothing to disclose: Write "None" in the Description column. Do not leave it blank — a blank field is ambiguous, while "None" is an affirmative statement.

Cofounder 1 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

Cofounder 2 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

Cofounder 3 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

Cofounder 4 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

Cofounder 5 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

Cofounder 6 — Pre-Existing IP:

Description	Ownership Status	Contribution Type (Assigned / Licensed)
__________	________________	_______________________________________

If no pre-existing IP is being contributed, write "None."

Exhibit B: Initial Capital Contributions

Document any initial financial contributions made by Cofounders:

Cofounder	Amount (USD)	Date	Purpose	Repayment Terms
_________	____________	____	_______	_______________

If no capital contributions have been made, write "None — equity-only/sweat equity."

Exhibit C: Beneficiary Designations (Section 10.7 — Death)

Each Cofounder may designate a beneficiary to receive their buyback payment in the event of death. If no beneficiary is designated, the buyback is payable to the Cofounder's estate per applicable probate law.

Cofounder	Designated Beneficiary	Relationship	Contact Info	Date
_________	____________________	____________	___________	____
_________	____________________	____________	___________	____
_________	____________________	____________	___________	____
_________	____________________	____________	___________	____
_________	____________________	____________	___________	____
_________	____________________	____________	___________	____

Beneficiary designations may be updated at any time by written notice to all other Cofounders.

Exhibit D: Cofounder 1 Pre-Incorporation Profit Contribution (Section 6.6)

Cofounder 1 voluntarily commits to redirecting 50% of their profit share during the period from the profit sharing trigger (Section 6.3, Phase 1 — $10K MRR) through and until formal incorporation of the Company.

What this means:

Cofounder 1's effective profit share during this period is reduced to 50% of their standard equal share
The redirected 50% (Cofounder 1's withheld portion) is held separately and must be allocated per the terms below
This commitment ends automatically upon formal incorporation — from that point forward, Cofounder 1 receives their full equal share with no reduction

Allocation of the redirected 50% — TBD:

The destination of Cofounder 1's redirected profit share must be decided by unanimous consent of all Cofounders before profit sharing distributions begin. The options are:

Company reserve — added to the 30% reserve pool, strengthening the company's financial cushion
Equal redistribution — split equally among the remaining Cofounders as additional profit share
Combination — a defined portion to reserve and the remainder redistributed to Cofounders (or vice versa)

This allocation decision must be documented in a written addendum signed by all Cofounders. It cannot be changed retroactively once documented. If no unanimous addendum is in force when a distribution occurs, the Deadlock Fallback below applies automatically to that distribution.

Selected allocation: ____________________ (Reserve / Redistribute / Combination — specify split if combination)

Rationale: This contribution reflects Cofounder 1's recognition of the asymmetric early risk and effort distribution during the pre-incorporation phase, and their commitment to either strengthening the company's foundation, rewarding fellow Cofounders, or both — as agreed collectively.

Deadlock Fallback — Automatic Reserve Default:

If the Cofounders have not executed a unanimous allocation addendum before the profit-sharing trigger (Section 6.3, Phase 1 — $10K MRR) fires, Cofounder 1's redirected 50% automatically defaults to the Company reserve (Option 1 above) for every distribution that occurs while the deadlock persists. The fallback continues to apply, distribution by distribution, until a unanimous addendum is signed.

The fallback is not retroactively reversible: amounts already swept into the reserve under the fallback remain in the reserve. A later unanimous addendum changes only the allocation of future redirections; it cannot claw back prior fallback contributions for redistribution to Cofounders.

The reserve is chosen as the default because it is the most conservative option — it strengthens the Company's financial cushion, does not distribute cash among Cofounders on a non-unanimous basis, and preserves all options for a later unanimous decision.

Early Incorporation — Commitment Expires Without Effect:

This Exhibit is explicitly scoped to the window from the profit-sharing trigger through formal incorporation. If formal incorporation closes before the Phase 1 profit-sharing trigger (Section 6.3) is met, this commitment expires without effect on the incorporation date, and Cofounder 1 has no residual obligation under this Exhibit — no redirection accrues, no addendum is required, and the reserve default does not apply.

Any voluntary post-incorporation contribution by Cofounder 1 is outside the scope of this Agreement and must be documented separately (e.g., in a board-approved side letter or an election under the post-incorporation compensation plan).

Cofounder 1 Departure Mid-Period:

If Cofounder 1's status as a Cofounder terminates — by voluntary departure (Section 10.2), involuntary removal (Section 10.3), death, or disability — after the profit-sharing trigger fires but before formal incorporation:

The redirection obligation applies pro-rata to any profit share Cofounder 1 is entitled to receive for distributions with a record date on or before the effective date of departure. It ceases automatically thereafter, because Cofounder 1 receives no profit distributions for quarters after departure (Section 3).
Amounts already redirected under the allocation method (or fallback) in effect at the time of each prior distribution remain subject to that allocation and are not returned to Cofounder 1 or their estate.
Amounts redistributed to the remaining Cofounders under Option 2 or Option 3 prior to Cofounder 1's departure are not clawed back by the departure.
Cofounder 1's departure does not relieve the remaining Cofounders of the obligation to execute an allocation addendum if they wish to displace the Deadlock Fallback for any subsequent pre-incorporation distributions; absent a unanimous addendum among the remaining Cofounders, the reserve default continues to apply.

This exhibit implements Section 10.10. It has three parts: (1) a marital status disclosure for all Cofounders, (2) an acknowledgment for unmarried Cofounders covering future marriages, and (3) a Spousal Consent Form to be signed by the spouse of each married Cofounder.

When each part is signed:

Part 1 (Marital Status & Residency Disclosure) — completed at signing of this Agreement, alongside the main signature block. Disclosure is required from every Cofounder regardless of marital status, so that counsel can identify the applicable marital-property regime at incorporation and determine whether Part 2 or Part 3 applies.
Part 2 (Unmarried Cofounder Acknowledgment) — signed at signing of this Agreement by any Cofounder who is unmarried and not in a registered domestic partnership as of the signing date. The acknowledgment establishes the Cofounder's forward-looking obligation to obtain a signed Part 3 within 30 days of any future marriage or registered partnership.
Part 3 (Spousal Consent Form) — signed at or before formal equity issuance (at incorporation, or earlier if counsel requires), per Section 10.10. Counsel is expected to prepare the final-form instrument for the chosen entity type before signing; the Part 3 form in this exhibit is a preliminary drafting aid, not the executed legal instrument. An already-married Cofounder may choose to have their spouse execute Part 3 earlier, but the binding execution is the counsel-prepared version at incorporation.

📌 Note for legal counsel: The forms below are preliminary drafting aids. Upon incorporation, Company counsel must prepare the final spousal consent instrument consistent with California Family Code requirements and current market practice — including explicit recommendations that the non-employee spouse obtain independent counsel, and any notarization required by the final operating documents.

Part 1 — Marital Status & Residency Disclosure (All Cofounders)

Each Cofounder must disclose marital status and state (or country) of residence as of the signing date. Residence determines the applicable marital property regime and informs the counsel review required under Section 10.10. Material misrepresentation is a material breach under Section 10.0.

Cofounder	Marital Status (Single / Married / Domestic Partnership / Separated / Other)	Spouse / Partner Name (if any)	State / Country of Residence	Spouse's State / Country of Residence (if different)	Date
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____
_________	_____________________________________	______________________________	____________________________	____________________________________________________	____

Part 2 — Unmarried Cofounder Acknowledgment

To be signed by each Cofounder who is unmarried (and not in a registered domestic partnership) as of the signing date. Repeat this block for each such Cofounder.

I, ____________________, represent that I am unmarried and not in a registered domestic partnership as of the date below. I acknowledge that if I enter into a marriage or registered domestic partnership while I hold equity in the Company, I will obtain a signed Spousal Consent Form (Part 3) from my spouse or partner within 30 days of the marriage or partnership registration and deliver a copy to the Company. I understand that failure to do so constitutes a material breach under Section 10.0 and Section 10.10.

Signature: ____________________

Printed Name: ____________________

Date: ____________________

Signature: ____________________

Printed Name: ____________________

Date: ____________________

Signature: ____________________

Printed Name: ____________________

Date: ____________________

(Add blocks as needed for additional unmarried Cofounders.)

To be signed by the spouse (or registered domestic partner) of each married / partnered Cofounder. One form per spouse.

I, ____________________ ("Consenting Spouse"), am the spouse or registered domestic partner of ____________________ ("Cofounder-spouse"), who is a party to the Lantern Cofounder Agreement dated ____________________ (the "Agreement").

I acknowledge that:

I have had the opportunity to review the Agreement in full, including but not limited to the transfer restrictions in Section 10.5, the mandatory buyback in Section 10.4, the vesting schedule in Section 5.2, the Immutable Rights in Section 9.1, and the spousal consent provisions in Section 10.10.
I have been advised to consult with independent legal counsel of my own choosing regarding the effect of this consent on my property and legal rights. I have either done so, or I voluntarily waive that opportunity with full understanding of the consequences.
My Cofounder-spouse's equity in the Company may constitute community property under California law, in which I may hold a community property interest.

I agree that:

Any community property interest I hold — now or in the future — in my Cofounder-spouse's equity is fully subject to and bound by the Agreement, including all transfer restrictions, buyback obligations, vesting rules, and governance limitations.
In the event of divorce, legal separation, annulment, dissolution of domestic partnership, or other marital dissolution, I shall not receive record ownership of Company equity, voting rights, governance rights, or any ownership interest in the Company. My community property interest is limited to the economic value of the Cofounder-spouse's vested equity as determined under Section 10.4.
Any court order, marital settlement agreement, or judgment purporting to transfer Company equity to me shall be treated as automatically triggering the Company's mandatory buyback obligations under Section 10.4. I will accept cash — or a promissory note on the same terms offered to any departing Cofounder — in exchange for the interest. I will not demand, and the Company is not obligated to deliver, equity itself.
I waive any right or claim to compel the Company to issue equity certificates to me, to recognize me as a Company owner or member, to seat me on any governing body, or to grant me access to governance information beyond what is required by applicable law.
This consent is irrevocable as to all equity my Cofounder-spouse holds at the time of signing, and extends automatically to any future equity my Cofounder-spouse is granted under the Agreement.

Consenting Spouse:

Signature: ____________________

Printed Name: ____________________

Date: ____________________

Independent counsel consulted? (Yes / No / Waived): ____________________

If counsel consulted — counsel name and contact: ____________________

Cofounder-spouse (confirming delivery of this form to the Company):

Signature: ____________________

Printed Name: ____________________

Date: ____________________

(Reproduce this Part 3 for each married or partnered Cofounder.)

This document was drafted from Lantern's existing governance framework. It reflects the principles established in IMMUTABLE_RIGHTS.md, EMPLOYEE_RIGHTS_CHARTER.md, TEAM_STRUCTURE.md, GOVERNANCE.md, and related governance documents. All Cofounders are encouraged to review these source documents in full.

2026 06 28 Admin Ban Wiring

2026 06 30 C3 Safety Loop

2026 07 01 Sealed Ban Reconciliation

2026 07 13 In Portal Appeals

2026 08 18 Post Deploy Window

887 Invite Gate

901 Server Only Account Creation

912 Billing Reports Reconciliation

913 Billing Donut Row

915 Overview Invoice Only Vendor

958 Query Console Firestore

Ad Network First Class

Ad Network Seed

Admin Auth Tier Fallthrough

Admin Portal Visible Defects

Admin Venue Creation

Admin Venues Section

Agent Credential Bootstrap

Agent Skills And Instructions

Alpha Loop Verification

Analytics Config And Reports

Block Sever 144

Break It Walkthrough 193

CI Hardening

Credential Colocation 875

Cross Tool Loading

Merchant Live Data

Merchant Onboarding Seam

Merchant Portal Defects 2026 08 28

Merchant Venue Association

Milestone Classifier

Mobile Device Verification

Offer Moderation

Offer Moderation 807

Onboarding AI Prompt

Onboarding Fixes

Phone Input Plus1

Push Notifications V1

PWA Precache 772

Safety Tab And Unlock Window

Serializer Audit 844

Slow Load After Deploy

Agenda

Skills

Rules

Workflows

2026 08 22 Format After

2026 08 22 Format Before

Preliminary Cofounder Agreement — Lantern ​

Important Disclaimer ​

Areas Requiring Cofounder Review Before Signing ​

Table of Contents ​

1. Parties ​

2. The Company ​

2.1 Intended Entity ​

2.2 Incorporation Process ​

2.3 Pre-Incorporation Legal Status ​

2.4 Incorporation Timeline ​

Preliminary Cofounder Agreement — Lantern

Important Disclaimer

Areas Requiring Cofounder Review Before Signing

Table of Contents

1. Parties

2. The Company

2.1 Intended Entity

2.2 Incorporation Process

2.3 Pre-Incorporation Legal Status

2.4 Incorporation Timeline