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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Popularity: 13% [?]

An Executive Employment Agreement is a binding agreement for employment between a company and an executive. In contrast to an executive compensation agreement, Executive Employment Agreements are binding, and by executing the agreement, both the company and the executive are promising to perform under the agreement’s terms.

The agreement should begin with a “Recitals” section that lays out the overall purpose of the agreement. The following are key provisions commonly found in executive employment agreements:

1. Term. First, this provision should list the employee’s annual salary. Also, any agreement regarding the option to renew the agreement, either on the executive’s side, the company’s side, or both, should be addressed.

2. Duties of Employee. If the precise services of the executive may be extended or curtailed by mutual agreement, this should be listed as well.

3. Duties of Employer. The employer should promise to pay all compensation, benefits, and allowances as set forth in the agreement.

4. Confidential Information. The executive must promise to keep all secret information confidential.

5. Termination. If the employer may only terminate the executive for cause, then cause must be defined.

If you are an executive considering employment with a new company, it would be wise to retain an employment attorney to look over your Executive Employment Agreement to ensure your interests are protected.

Popularity: 9% [?]

An Executive Compensation Agreement is an agreement between a company and a potential executive whom the company would like to hire for employment. These agreements lay out the terms of an executive’s employment, including but not limited to provisions covering the executive’s compensation, including a bonus structure, scope of employment, grounds for termination, and severance package available upon termination. Specifically, when drafting an Executive Compensation Agreement, be sure to include the following provisions:

1. Opening Recitals. Be sure to first include the date of the agreement, the name of the company and the executive (and any abbreviations of the names that will be used throughout), the address of the company’s headquarters, and general purpose for the agreement. This recital can be as simple as: “Company and Executive are forming this agreement for executive to provide company with services as __________”, and list the title of the position.

2. Terms and Conditions. The first few provisions should lay out the terms and conditions of the agreement. This should include the title of the position. It should also include the length of the term of employment, and whether or not the term is renewable by either party or upon mutual consent.

3. Scope of Duties. The scope of the executive’s duties and the expectations of the company should be laid out in detail. In exchange for compensation, what is the executive being hired to do? Will he be required or expected to meet certain financial goals? How many employees will he be managing? These questions should be answered in detail. If describing these duties takes up several pages, it may be advisable to create an attachment and refer to it in the agreement. If this is the case, the provision could read: “In consideration of receiving compensation, executive agrees to perform the position, duties and office outlined in Attachment A.”

4. Compensation and Benefits. The executive’s compensation and benefits package should also be covered in detail. This should include annual salary, bonus opportunities for achieving certain goals, and stocks and stock options. His benefits package should be covered, listing his vacation time, health benefits, travel reimbursement, 401(k), pension (if applicable), disability pay, etc. Again, if the drafter prefers, he or she may want to draw up this information on a separate document, attach it to the agreement, and simply refer to the attachment.

5. Termination. Usually an executive is subject to termination under certain circumstances or upon certain events. These grounds for termination must be described in this provision. There are several scenarios that may be in play:

a. If the executive is to remain an “at-will” employee, then management can terminate the executive’s  employment at any time, for any reason. If this is the case, the executive should be able to do the same.

b. In the alternative, the company may be allowed to fire the executive for any reason, but must provide the executive certain notice, usually in writing. An executive may be able to negotiate for as much as twelve (12) months written notice. Again, here the executive might be required to do the same.

c. Alternatively, the company may only be allowed to terminate the executive for “good cause”. If so, the term “good cause” must be defined. Usually good cause is defined as the failure to achieve modest financial targets or if the executive commits a bad act against the company, such as theft, or violates his fiduciary duty, duty of loyalty, or duty of confidentiality.

These are the most critical provisions that must be addressed in an Executive Employment Agreement. Provisions covering compensation upon termination, covenants regarding inventions and copyrights, protection of confidential information, covenant not to compete, severability, and governing law should also be included. For more information or to read actual clauses from Executive Employment Agreements, please visit the agreement section of this website.

Popularity: 6% [?]

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% [?]

Let’s say you are an executive of a company, and the company presents you with an Equity Incentive Agreement. The idea behind Equity Incentive Agreements is that if the financial stake of the employee is tied closely to the financial future of the company, then that employee will have the incentive to work hard to meet the company’s financial goals. The package offered to an employee, as described in an Equity Incentive Agreement, will usually contain a mix of stock and stock options, carefully adjusted and fixed to company growth so as to adequately reward the employee for good performance.

Each agreement generally contains the following provisions.

Purpose. The purpose of the agreement, that being to motivate and reward the employee and permit the company to attract and retain able persons as employees, directors, and consultants, should be explained at the top of the agreement.

Plan Administration. The name of the committee that will be administering the equity incentive plan should be addressed.

Stock Subject to Agreement. The number of stock and/or options provided should be listed, and if the agreement provides for stock options to be awarded, it must cover the employee’s right and method to exercise.

Change of Control. The agreement should address what effect a change of control of the company, as defined within, would have on the agreement. Might some provisions be accelerated? The agreement should address this scenario.

If you are presented with an Equity Incentive Agreement by your employer, be sure to look out for these provisions.

Popularity: 5% [?]

An Equity Incentive Agreement is a contract between a key employee and his or her employer, whereby the employer provides the employee with an equity interest in the company in order to motivate him or her to strive for high levels of on-the-job performance. The idea is that if the financial stake of the employee, generally a director, CEO, or other high-level executive, is tied closely to the financial future of the company, then that employee will have the incentive to work hard to meet the company’s financial goals. The package offered to an employee, as described in an Equity Incentive Agreement, will usually contain a mix of stock and stock options, carefully adjusted and fixed to company growth so as to adequately reward the employee for good performance.

For those drafting such agreements, it is important to include the following provisions:

1. Purpose. The purpose of the agreement, that being to motivate and reward the employee and permit the company to attract and retain able persons as employees, directors, and consultants, should be explained at the top of the agreement.
2. Definitions. Key terms should be defined in this paragraph. Such terms could include “annual incentive award,” “beneficiary,” “change of control,” “contribution agreement,” “covered employee,” “effective date,” “restricted stock”, and several others.
3. Plan Administration. The name of the committee that will be administering the equity incentive plan should be addressed. Generally the Board of Directors of a company will set up a committee for the purpose of administration of the plan. This provision should discuss who is on the committee or how it is comprised, the extent of the committee’s authority to adopt, amend, or rescind rules and regulations respecting the plan, and the limitations on the committee’s liability.
4. Stock Subject to Agreement. The overall number of shares of stock, the application of any limitations to grants of awards, the availability of shares not issued under those awards, and the exact type of stock offered should all be addressed in this section.
5. Exercise of Option. If the agreement provides for stock options to be awarded, it must cover the employee’s right and method to exercise.
   a. Right to exercise. This provision should state for how long the option is exercisable and refer to a vesting schedule if applicable.
   b. Method of exercise. This provision should state how the option is exercisable, be it by delivery of written or electronic notice.
6. Change of Control. The agreement should address what effect a change of control of the company, as defined within, would have on the agreement. Would the agreement still be in place? Would it be terminated? Might some provisions be accelerated? The agreement should address this scenario.
7. Entire Agreement / Governing Law. The final provision should state that the employee incentive plan is incorporated into the agreement by reference and that the plan and the agreement constitute the entire agreement of the parties with respect to the subject matter hereof, superseding in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter addressed. The provision should also refer to the jurisdiction whose laws will govern the agreement.

These are some of the most important provisions found in Equity Incentive Agreements. Most importantly, the drafter will want to incorporate the Equity Incentive Plan by reference into the agreement, and carefully draft each provision to reflect the intentions of the parties.

Popularity: 5% [?]

A Loan Servicing Agreement is part of a package of disclosures that a lender gives to a buyer for his or her signature at the closing of a real estate transaction. This document tells a buyer that it is likely that the loan will be sold to an investor or another lender on the secondary mortgage market. It also describes the process that the lender will take in notifying the buyer of the transfer of the servicing rights to the loan.

When you buy a house and get financing, the lender may end up selling the loan to another bank or investor, or, in some cases, may sell the rights to service the loan to a company that specializes in loan servicing. As an owner, you’ll want to know how to contact the lender that is servicing your loan and need to know where to send the monthly mortgage payments.

As a buyer of real estate, you should generally not be alarmed by the Loan Servicing Agreement. Any lender who buys the right to service your loans will be bound by the same terms and conditions that bound the original lender. Your contract will simply pass from one company to the other. While the address where you send your monthly payments may change, none of the material terms, such as interest rate, principal balance, or payment schedule will be modified or amended without written agreement between you and the new loan servicing company.

Popularity: 6% [?]

Lets say you want to apply for a loan, be it for a house, a car, or to pay for school. Very often, the company you deal with, either through the car dealership, the mortgage company, or your school is not the bank that is actually processing the loan. Rather, banks like to hire marketing and servicing companies to, as the name would suggest, market and service loans. This includes advertising the loan product, printing out loan applications, and receiving loan payments. The bank, however, is still making all decisions regarding the loans, such whether or not you are approved, and if so, what the terms and conditions of the loan may be. Let’s take a closer look at a typical Loan Marketing and Servicing Agreement between a marketing and servicing company, whom we shall creatively call Marketing and Servicing, Inc., and a Bank.

The first provision of such an agreement will state clearly and unequivocally that the
Bank shall make all decisions regarding the loans. At no time shall Marketing and Servicing, Inc. (”servicer”) imply or suggest that the loans are made or approved by servicer or that servicer can improve an applicant’s prospect of obtaining a loan. At the same time, the agreement could also provide Marketing and Servicing, Inc. a “right to purchase” any loan the Bank wishes to divest itself from. If this is the case, then if Bank wishes to sell or transfer any Loan to a third party, Marketing and Servicing, Inc. may wish to reserve a right of first refusal to purchase, receive or participate in the loans.

The second provision will want to cover Marketing and Servicing, Inc.’s general duties. This provision should authorize Marketing and Servicing, Inc. to act as the fiscal agent for the bank, and to establish retail stores where loan applicants may submit loan applications and where borrowers may execute and deliver loan documentation and repay loans. The agreement is thus creating a traditional “agency” relationship between the Bank, the principal, and Marketing and Servicing, Inc., the agent, who is given explicit authority to act on behalf of the bank in respect to certain functions.

The next provision will cover Marketing and Servicing, Inc.’s duties in respect to the marketing of the loans. The Bank will authorizes Marketing and Servicing, Inc. to market the loans using the name, trade name, and logo of bank in connection with such marketing. Marketing and Servicing, Inc. may also advertise as it sees fit as long as said advertisements appropriately identify bank as the lender. The Bank shall exercise no authority or control over Advance America’s employees or methods of operation, except as set forth in this agreement.

Finally, the agreement must set forth Marketing and Servicing, Inc.’s duties in respect to servicing of the loan applications. Again, the bank will be responsible for making the final determinations regarding loans, and Marketing and Servicing, Inc. will be the middleman receiving and processing all loan applications. If applicable, Marketing and Servicing, Inc. may also provide collection services to the bank and shall make all reasonable efforts to collect on unpaid loans.

These would be the typical provisions found in a Loan Marketing and Servicing Agreement. Hopefully, this article has shed some light on how this common arrangement works in practice.

Popularity: 4% [?]

An Intellectual Property Licensing Agreement is a written, legally binding contract effectuating an agreement between an owner of intellectual property (”Licensor”) and a party wishing to use that intellectual property for a particular purpose (”Licensee”). One who has a license to use another’s intellectual property does not own it, but merely has the right to use it. Therefore, certain elements must be addressed in any comprehensive Intellectual Property Licensing Agreement. The following are the most important areas to address:

• Scope of the License: The first thing a license agreement should do is to clearly define the scope of the license. By licensing a product, you are assigning a limited right to use that property, so you must be sure to retain the ultimate ownership rights. At the same time, you don’t want to be overreaching or too limiting so as to discourage potential customers from using the product.
• Exclusive vs. Non-Exclusive: Except for custom-made products, a license agreement would typically be non-exclusive, meaning that the licensor can sell the same rights to other users. However, this wouldn’t necessarily allow the licensee to reproduce or pirate the product and sell it to third parties. Sometimes, licenses allow reproduction within a controlled environment such as with enterprise licenses or network licenses. In other cases, a licensor may allow for a resale license, with a royalty being paid to the licensor.
• Revenue Streams. Next in importance are provisions controlling revenue streams generated by licensed products. With most license agreements on end user software for consumers, for example, a one-time license fee is usually paid when the software is purchased. Other arrangements may include recurring payments such as royalties or monthly lease payments. License agreements may also cover maintenance charges such as ongoing maintenance. Other topics to cover include:
• Term and Termination: The length of the agreement should be designated. The parties must also agree whether or not the agreement will terminate upon a change of control of licensor or licensee. If a change of control will affect the agreement, it must be defined specifically. In addition, this provision should state whether or not the agreement may be terminated by either party for breach, and if so how.
• Prohibited Uses: The licensor may wish to prohibit the licensee from using their intellectual property in certain ways that could embarrass or otherwise devalue the property. The licensor will want to include these provisions here.
• Rights to Transfer and Sublicense: The licensor may or may not wish to grant the licensee the right to transfer or sublicense the property at issue. The licensor may want the right to approve or reject potential sub-licensees, or prevent sublicenses all together.

These are the most important areas an Intellectual Property License Agreement must address. Further provisions covering the rights to source code (if software is involved), acceptance, testing and training procedures, warranties, limitations on the licensor’s liability, support and maintenance services, nondisclosure of confidential information, indemnity for infringement, enforcement of remedies, and terminating the contract should also be included.

Popularity: 4% [?]

A Note Purchase Agreement is a contract for the purchase of a type of financial instrument called a “note”, the purchase of which acts as an investment in that company. Upon selling the note, the company receives a significant amount of cash that it can invest into the business. As with any investment arrangement, certain conditions must be met, and the company must provide certain promises, covenants, representations and warranties to the purchaser of the note. The following are key provisions that must be included in a Note Purchase Agreement.

• Definitions - Terms used extensively in the agreement should be defined, terms such as “affiliates”, “capital stock”, “change of control”, “default”, “guarantee”, “organizational documents” and “permitted liens”. An index of defined terms, referring the reader to where they are used, may also be included.
• Purchase and Sale of Notes - This provision should address the details (dollar amount, # of shares, method of delivery) surrounding the purchase and sale of the notes.
• Closing - This provision must cover the details of the closing; most importantly, where and when it will take place.
• Representations and Warranties of the Company - The most important provisions in the agreement are the representations and warranties made by the company to the purchaser of the notes. The company must promise several things, including: (1) that it is an entity duly organized and validly existing and in good standing; (2) that it has “due authorization” to conduct this transaction; (3) that all agreements related to the transaction, other than the notes themselves, are of “binding effect” and enforceable against third parties; (4) that the execution of the financing documents does not contravene or conflict with any of the Company’s organization documents; (5) that the company has previously furnished to the purchasers all important SEC Reports, including its Form 10-K Annual Report and Definitive Proxy Statement; (6) that the sale of the notes constitutes a valid issuance of stock; and (7) that there is no pending litigation against the company except as disclosed.
• Affirmative Covenants - Going forward, as long as the notes remain outstanding, the company must promise to maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with GAAP. (Generally Accepted Accounting Principles.) The company must also promise to pay all obligations timely, to engage in business of the same general type as they currently conduct, and that it will keep all property useful and necessary in its business in good working order and condition. It must also promise to maintain property damage insurance to protect its assets.
• Negative Covenants - Going forward, as long as the notes remain outstanding, the company must promise that it will not create, incur, assume, or become liable to any debt except for debt assumed for the purpose of financing the cost of acquiring any asset less than a certain amount, nor will it purchase or acquire any assets other than in the ordinary course of business.

In addition to these provisions, provisions covering Events of Default and any Conditions to Closing, and Expenses, Indemnity, Taxes and Right to Perform should also be addressed.

Popularity: 4% [?]