Shareholder Rights Agreements are contracts entered into by and between the shareholders, a.k.a. investors or stockholders, of a company. These agreements are intended to protect the company and its shareholders from potentially coercive takeover practices or takeover bids that are inconsistent with the interests of the company and its shareholders. Most often, the shareholders agree not to sell their securities before a specified time, or to a specified person or entity, without the consent of the others. Other typical provisions of such an agreement are:

1. Company Registration. This provision gives the shareholders the right to know when the company has registered any of its equity securities, which could take place pursuant to an employee benefit plan. When registration occurs, the shareholders usually reserve the right to request that their shares are registered as well. At the same time, the company may want to reserve the right to terminate or withdraw any registration initiated by it, whether or not any holder has elected to include securities in such registration.

2. Restriction on transfers. Typically, the agreement will require each holder of restricted securities to give written notice to the company of their intention to effect a sale, assignment, transfer or pledge of their securities prior to doing so. The company may require that each request be accompanied by a written opinion of legal counsel or a “no action” letter from the Securities Exchange Commission (”SEC”) to the effect that the transfer of the securities without registration will not result in action taken by the SEC.

3. Exception for Partnerships. The agreement may also state that this restriction on transfers shall not prohibit a partnership or limited liability company from distributing restricted securities solely to its affiliates, partners, or members, when it does so without consideration. This means that if a partnership or LLC wants to “give” its members securities, it shall be allowed to do so without complying with the restriction provisions of the agreement.

4. Indemnification. The shareholders will usually want the company to indemnify each holder with respect to registration or compliance with the Agreement against all expenses, claims, losses, damages or liabilities arising out of any false statement of a material fact contained in any registration statement, prospectus, offering circular or any amendment thereto. Essentially, the shareholders do not want to take responsibility for the company making a false statement about their business that might raise the attention of the SEC.

The agreement may also include less critical, but still important, provisions in respect to transfer of registration rights, termination of rights, third parties, governing law, executing the agreement in counterparts, notice, severability, amendments and waiver, and attorney’s fees. Finally, an authorized representative of each and every shareholder as well as the company’s CEO or CFO must sign the agreement.

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Popularity: 13% [?]

When two parties want to agree on a transfer, sale, or purchase of stocks, and when one or more of the parties wants to restrict the other party’s use of that stock for a certain period of time, a Stock Restriction Agreement may be called for. Usually connected with larger-scale transactions such as mergers and acquisitions, these agreements limit a stockholder’s ownership rights in consideration for some service or financial compensation that is provided. When drafting a Stock Restriction Agreement, transactional attorneys should take note of the following provisions:

Recitals. Here the drafter should, in a list of recitals beginning with “Whereas,” list the central purposes of the agreement; why each party has chosen to enter into it, what they hope to gain from it, and who specifically (Board of Directors, Employee) are involved.

Defined Terms. Key terms such as “cause”, “change in control”, “common stock”, “good reason”, and “restricted stock” must be defined with specificity.

Restrictions. Here the drafter must specify the restrictions being placed on the stock. This can be done in the body of the agreement, if there are few, or in an addendum, if there are many. Often the agreement will restrict an employee’s ability to sell or transfer the stock if he voluntarily terminates his or her employment. Such a restriction may be drafted in this manner:

“Notwithstanding anything herein to the contrary, if Stockholder terminates service with the Company or a Subsidiary as an employee or consultant for any reason other than his termination by the Company or such Subsidiary without Cause or his voluntary termination for Good Reason, all Restricted Stock as to which the Restrictions have not lapsed according to Section 5 hereof as of the date of such termination shall immediately be forfeited and shall be transferred to the Company for no additional consideration.”

Any other restriction on the use, sale, or transfer of the stock must be listed. In preface to these restrictions, it should also be noted that the stockholder shall “have all rights and privileges of a stockholder of the Company with respect to the Restricted Stock, including voting rights and the right to receive dividends paid with respect to such shares, except that the following Restrictions shall apply.”

Lapse or Restrictions. The drafter should include a section outlining if and when the restrictions will lapse. For instance, the restrictions, in part or in whole, may lapse after six-months, or a year. It is here that drafters can use their creativity in order to draft a deal that is beneficial to both parties.

These are the most important provisions of a Stock Restriction Agreement. Provisions covering Adjustments to Shares, Severability, Modification, Governing Law, and Binding Arbitration should be addressed as well. To consult actual Stock Restriction Agreements, visit the Agreements section in www.RealDealDocs.com.

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SmartRules provides step by step guides to local rules and civil procedure for state courts & federal courts throughout the country.

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Redemption agreements must conclude with a succinct and clearly written “Mutual Release of Claims” paragraph. Here, the drafters of the redemption agreement should write that the Investor, on behalf of itself as well as each of its officers, directors, agents, employees, etc., will release the company from all liabilities, claims, demands, etc. that arise out of or relate to the redemption agreements or any of the former agreements signed by and between the too parties - such as an Amended or Restate Note, Merger Agreement, Registration Rights Agreement, or any other transaction documents. Note that this should not include, however, a release of all claims that may arise out of a breach of the agreement.

Likewise, the company, on behalf of itself and all of its agents, should release the investors from any and all liabilities, claims, demands, etc. arising out of the redemption agreement or any former agreement; but again, this should not cover claims arising out of a breach of the redemption agreement. Sometimes the drafters may even want to specifically state that both parties waive all rights otherwise conferred to them under the law. California Civil Code Section 1542, for example, states that “a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him would have materially affected his settlement with the debtor.” Seems fair, right? But in an effort to completely eliminate the possibility of litigation between the parties, drafters will sometimes want to include language stating that both parties waive any rights conferred to them by those sorts of statutes.

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SmartRules provides step by step guides to local rules and civil procedure for state courts & federal courts throughout the country.

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When drafting a non-solicitation agreement on behalf of an employer, it is important to draft the following distinct clauses: (1) the employee may not solicit the employer’s existing employees, independent contractors, or employees or contractors of its subsidiaries; (2) the employee may not solicit the employer’s existing clients; and (3) the employee may not interfere with the employer’s existing business relations with its customers, suppliers, or other businesses with which it conducts business. The non-solicitation agreement must also address the length of the restriction on solicitation.

1. Employee may not solicit the company’s current employees. This provision should read something like: “Either alone or in association with others, Employee may not solicit, or facilitate any organization with which the Employee is associated in soliciting, any employee of Entrust or any of its subsidiaries to leave the employ of Entrust or any of its subsidiaries.”

2. Employee may not employ the company’s current employees. The non-solicitation agreement should further read that the Employee “may not solicit for employment, hire or engage as an independent contractor, or facilitate any organization with which the Employee is associated in soliciting for employment, hire or engagement as an independent contractor, any person who was employed with Entrust or any of its subsidiaries at any time during the term of the Employee’s employment with Entrust or any of its subsidiaries”

3. Employee may not solicit company’s customers or clients. The non-solicitation agreement should state that the Employee may not “solicit business from or perform services for any customer, supplier, licensee or business relation of Entrust or any of its subsidiaries, induce or attempt to induce, any such entity to cease doing business with Company or any of its subsidiaries, or in any way interfere with the relationship between any such entity and Company or any of its subsidiaries.”

4. Time limitation. In order for it to be enforceable, the agreement must limit the restriction on solicitation to a certain time frame. The non-solicitation agreement generally shall not apply to any individual whose employment with Employee or any of its subsidiaries has been terminated for a period of one year or longer.

5. Not an Employment Contract. In order to preserve the default at-will employment relationship, the contract drafter should make it clear that the non-solicitation agreement does not constitute an employment agreement. This clause could read as follows: “The Employee acknowledges that this Non-Solicitation Agreement does not constitute a contract of employment and does not guarantee that the Company or any of its subsidiaries will continue his/her employment for any period of time or otherwise change the at-will nature of his/her employment.”

These are the most important provisions of a non-solicitation agreement.

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SmartRules provides step by step guides to local rules and civil procedure for state courts & federal courts throughout the country.

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An Intellectual Property Assignment Agreement is a written and enforceable contract effectuating an assignment of intellectual property rights from an “Assignor”, the owner of the rights, to an “Assignee”, the purchaser of the rights, in exchange for valuable consideration. Unlike an Intellectual Property License Agreement, which provides the licensee a right to use, but not to own, certain intellectual property rights, an assignment agreement involves a complete and exclusive sale of the rights, thus giving the assignee complete ownership to exploit the intellectual property rights in whatever way, shape, or form it likes, subject to any limitations listed in the agreement. Usually the assignee will pay the assignor cash or stock consideration in exchange for these rights.

This article will take a look at a traditional IP Assignment Agreement between two companies. In our hypothetical agreement, the assignee is making to the assignor a combination of both stock and cash payments, the details of which will be addressed in the agreement, along with details regarding the transfer of the intellectual property rights, and any other material information in respect to the transactions. The seller of the IP rights is referred to as “Assignor”, while the purchaser is referred to as “Issuer.”

The first section the agreement should provide Definitions of the key terms used in the agreement. Terms that can have more than one meaning, such as “assets”, “business”, “closing”, and of course “intellectual property” should be defined. Next the agreement should address the Issuance of Shares and Transfer of Intellectual Property. The agreement might state that as of the Closing, the Issuer shall sell, assign, transfer, convey and delivery to Assignor the “Assignor Shares and Warrant,” which will be described herein. In return, the Assignor shall sell, assign, transfer, convey and deliver to Issuer all of Assignor’s right, title, and interest in and to Assignor IP rights as defined herein. Then, both the stock to be awarded and the Intellectual Property rights to be transferred should be described in detail. The timing of the payments, be it at the time of closing or at some point thereafter, should also be addressed.

The next paragraph addresses the details of the Closing, such as the location, date, and what each party shall deliver. The deliverables usually include the shares, copyright, trademark, and/or patent certificates, transfer agreement for each, and the IP assignment agreement, and any accompanying agreements. The next paragraph deals with Representations and Warranties, where both parties must warrant that they own that which they purport to transfer to the other party (the stocks and the IP rights), and they are authorized and have the requisite corporate power to execute the transaction documents. Both parties should also warrant that the execution of the agreement will not conflict with any federal, state or local laws, the bylaws of their respective corporation, another agreement, and so on. The parties must lastly promise that the assets to be transferred are own free and clear of any encumbrances, unless provided, and that there are no undisclosed liabilities that could have a material adverse effect on the transaction.

Lastly, the agreement should address general matters in respect to the transaction. The parties should agree that the agreement sets forth the entire understanding of the parties and supersedes all prior agreements; that any amendments must be in writing and signed by both parties; that the agreement shall be binding upon each party’s heirs, legal representatives, successors, and permitted assigns; and that no party may assign the agreement without the other party’s prior written consent. The parties may also want to include a provision recognizing that in these types of arrangements, damages may not be a sufficient remedy in the case of breach, and that the remedies of specific performance orders, restraining orders, and injunctions shall be permitted. Finally, the agreement should also address which law will govern the interpretation of the agreement, whether the agreement may be executed in two or more counterparts, and whether the provisions of the agreement are severable.

These are the key aspects of an Intellectual Property Assignment Agreement. Drafters should be sure to consult Federal intellectual property laws before drafting this type of agreement, and should make sure the parties have a clear understanding of their arrangement. To read and/or download actual Intellectual Property Assignment Agreements, please check out the Agreements section of this website.

Popularity: 9% [?]

Saw this great post over on Smallbiztrends concerning some of the problems that come up with writing contracts.

Have you ever contacted your attorney to prepare what you think will be a simple contract, only to get snared in a situation that feels like an episode of the Twilight Zone?

You know what I’m talking about. You’re imagining it as a simple 2-page contract, only to have it turn into the 17-page, 9-point font “contract from hell.”

I have seen a lot of examples of this kind of contract, some are even archived on RealDealDocs. One example would be the Halliburton KBR Seperation Agreement we posted a while back.

And thinking back, I now realize there were times as an attorney when I prepared contracts that could have been more user friendly. The process could have been a lot more efficient. That’s especially true early in my career, before I knew better. Of course, I learn best from making mistakes.

I am glad he sees the errors of his way. It’s not a requirement that laws be unreadable, in fact it should be the other way. While contracts are written by lawyers, it’s also important that the people signing them have a good understanding of what they mean and what they’re getting into. In some places if this isn’t the case, the contract could even be void, since the people are not obligated to conform to a contract which includes unreasonable expectations.

You can read the full article about efficient contract writing here: Part One, Part Two

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Exhibit 21

TRIBUNE COMPANY—LIST OF SUBSIDIARIES

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