A non-compete agreement is a written understanding between two parties in which one agrees not to compete in the same field or profession as the other for a set period of time and within a defined geographic region. This area of the law is delicate, unsettled, and varies from state to state. The purpose of the agreement is to protect a company’s legitimate business interests in the form of sensitive information or trade secrets.

The “agreement” is most often:
* A free-standing agreement;
* A clause in the employment agreement; or
* A clause in the separation agreement.

The agreement delineates:
* A temporal limit (e.g., six months; two years);
* A territorial limit (e.g., within the city limits of Denver; within a 25-mile radius of the company’s address).

Reasonableness is key. Courts will not uphold agreements that demand too much in terms of time-ten years for example-or geography-within a whole state or in the entire US, unless there is a correspondingly important business reason.

Consideration is also important, so the employee, whether new, old, or recently terminated, must be given something of value for agreeing not to compete. For the new, the prospective job should do. For the old, the specter of a raise will work. And for the newly terminated, compensation as part of a separation agreement is a good idea.

California bans non-compete agreements except in the sale of a business. Other states may strike down overbroad agreements altogether or merely cut out the offending sections (i.e. “blue line” them).

Consider how the employee left. If he was fired without cause or laid off, a court will likely be on his side. If he quit or was let go for cause, then the pendulum swings back in favor of the company.

In short, the non-compete agreement must strike a balance between protecting a company’s legitimate business interests and not infringing upon an employee’s right to work.

Popularity: 9% [?]

In the rapidly developing open-source world of the Internet, it is currently in vogue for company’s to forge partnerships whereby one company, a software developer, contributes software code to another company’s platform. This code is often in the form of an “add-on application” that allows users to install applications on top of their originally purchased software. For instance, on Apple’s new iPhone, a user can choose from hundreds of available applications to install on the phone, such as customized versions of video games, music programs, or trivia. Once installed, these applications run as if they were part of the phone’s software, but in fact, they were designed by outside software companies. From a legal standpoint, in order for these companies to become integrated with the Apple service, they had to first sign a “Contribution Agreement” with Apple.

The same can be said for software contributors to the well-known Facebook platform, which has become the main peer-to-peer networking site on the web, boasting a membership of more than 70 million users. Just like with the iPhone, a Facebook user is able to install and “add-on” countless applications, such as Word Twist, Poker, Movie Trivia, and other applications that can be used to play games or connect with friends. Here again contributors must execute Contribution Agreements. This article will look closely at the provisions commonly found in software Contribution Agreements, hopefully providing a blueprint for transactional attorneys to use when representing software developers or platform operators and for reference when drafting agreements for their clients on either side of the transaction.

The most important decision for the platform-operating client to make is whether or not they will require contributors to assign the intellectual property rights in their contribution to the platform operator. This is a very dangerous thing, obviously, as the program undoubtedly took hard work to create and may be extremely valuable. Naturally, the extent to which the contributor must assign or license the IP rights to the software code depends on the leverage of the two parties.

In the case of Facebook, Facebook requires that contributors assign the IP rights to Facebook, but with the provision that Facebook automatically licenses back the IP rights to the developer to use in any way the developer wants. In other situations, such as Contribution Agreements with Sun Microsystems, the contribution agreement effectuates an assignment of joint ownership of the software code to Sun, the platform operaton. In case the assignment is or becomes invalid, the contributors grant to Sun a perpetual, irrevocable, non-exclusive license. Similarly, in the Facebook contribution agreement, if any rights to the contribution cannot be assigned, the developer grants an exclusive, irrevocable, perpetual, worldwide and royalty-free license to use the software. The contributor to Facebook must also waive any rights to sue Facebook in terms of the use of the software.

Once the platform operator and software developer have agreed on the transfer, assignment, or license of intellectual property rights, the rest of the agreement pretty much falls into place. The platform operator may want the contributor to agree to take all further, reasonable actions as may be requested of them, to perfect the assignment of the contribution, including but not limited to executing any necessary documents. It is also typical to include a Warranties and Representations provision, whereby the contributor must promise that it is legally entitled to grant the above assignment, that it is the contributor’s original work, and that the contribution is free of any viruses or software disabling devices.

These are the key aspects of an Open-Source Software Contribution Agreement. Clearly, the handling of the intellectual property rights of the contributor to the contribution is the most important task for the drafter to address.

Popularity: 13% [?]

An Assignment and Assumption Agreement is a relatively compact legal document, generally, whereby two parties agree that one party, the assignor, will assign another party, the assignee, all of its rights, obligations, interests, and responsibilities existing pursuant to another Agreement. By virtue of the Assignment and Assumption Agreement, the Assignee takes the place of the assignor and assumes all of its interests in the contract.

It is crucial for the agreement to state, at the outset in the recitals section, the underlying agreement. This underlying agreement is the Agreement under which the Assignor is assigning its rights, interests, and obligations to the Assignee. The recitals sections should also list the names of the companies involved. Following the recitals section, the key provisions of an Assignment and Assumption Agreement are as follows:

1. Assignment and Assumption. This provision lays out the basic assignment concepts described above. The agreement should read that as of the effective date, the Assignor assigns to assignee all of assignor’s rights, title, and interests under the agreement, and assignee assumes and agrees to perform all of the obligations and covenants in the Agreement. This provision may also include conditions that the assignor places on the assignment. Sometimes such conditions include a reservation of the right to approve certain transactions.

2. Indemnification. An indemnification provision is especially important in an Assignment Agreement. The Assignor will always want the assignee to agree to indemnify and hold assignor harmless from and against all liabilities, claims, damages, losses, (including attorney’s fees), and court costs, arising out of the obligation under the Agreement.

3. Termination. This provision may be included to read that this Assignment Agreement will automatically terminate when the underlying agreement ends or is terminated, and that all rights will transfer back to the assignor.

4. Successors. It is important to include a successors provision in the agreement, stating that the Assignment will be binding on and inure to the benefit of both parties and their respective successors and assigns.

5. Governing Law. The contract should include a provision laying out which state’

These are the most important provisions of an Assignment and Assumption Agreement. As you can see, it can be a very short document, but must be drafted clearly in order to avoid confusion and bind both parties.

Popularity: 10% [?]

Korean technology firm Woori Technology Inc. has entered into an Assignment and Assumption Agreement with New York based MSGI Security Solutions Inc. to provide touchscreen computer display technology to the U.S. Department of Defense. Under the agreement, MSGI assigns all of its rights and obligations under the contract with the Defense Department to Woori, but will continue to work with Woori to design and manufacture the technology.

The two companies plan to open a service facility in northern California where assembly, quality testing and systems integration will take place. The proprietary military-grade touchscreen systems are designed and tailored for use in harsh environments, including extreme temperatures, barometric pressure, and humidity, and will likely be used by soldiers fighting in Iraq and Afghanistan.

Popularity: 10% [?]

An Indenture Agreement, also known as an Indenture, is a formal contract between a bond issuer and a bondholder that describes the bond and amount at issue, and specifies the legal obligations of the bond issuer and the rights of the bondholder, such as the time period before repayment, amount of interest paid, if the bond is convertible (and if so, at what price or what ratio), if the bond is callable, and the amount of money that is to be repaid. A typical indenture agreement can be structured to include the following articles. Each article should be broken into paragraphs addressing specific issues within the broader article.

Article I: Definitions and Incorporation by Reference. This article should lay out the definitions of the terms used in the agreement. It should also list any other agreements that are incorporated by reference into the indenture. Finally, if necessary it should describe any rules of construction applicable to the agreement; for instance, this section could clarify that an accounting term not otherwise defined has the meaning assigned to it in accordance with General Accepted Accounting Principles, a.k.a. GAAP.

Article II: The Notes. This article should describe in detail the rules governing the issuance of the bond notes. What bond notes are at issue? What type are they? How are they registered with the SEC? What agent will be utilized to effectuate the official transfer? When is the date the bonds mature, and under what circumstances can they be called? Can they be replaced with other notes? What is the rate of interest? Under what circumstances can they be cancelled? These questions should be addressed in Article II.

Article III: Redemption and Offers to Purchase Notes. Redemption is the repayment of a debt security or preferred stock issue, at or before maturity, at par or at a premium price. Most indenture agreement will provide for an opportunity for the bond issuers to redeem up to a certain percentage of the aggregate principal amount of the bonds at any time prior to the maturity date. Sometimes a certain event must trigger this right of redemption. Upon redemption, the principal amount plus interest up to the redemption date must be paid.

Article IV: Covenants. The agreement should list specific covenants in detail, promises that each party makes to the other. These covenants could address issues relating to the payment of notes, reports, certificates of compliance, dividends, incurrence of indebtedness and issuance of preferred stock, asset sales, transactions with affiliates, business activities, offers to repurchase the bonds upon change of control, limitations on sale and leaseback transactions, events of loss or change of ownership, audits, insurance, and countless other areas.

Article V: Defaults and Remedies. This article should cover issues relating to events of default, acceleration, and waivers of past default. It should also address limitations on lawsuits, if any, placed on bondholders, the rights of bondholders to receive payment, and issues relating to collections’ suits by the trustee.

Article VI: Trustee. A trustee is always involved in the issuance of bonds to bondholders. This article should talk about the role of the trustee, including his or her duties, rights, and obligations. When is the trustee obligated to give a report to bondholders? When and how is he or she liable for the failure of the bond issuer? If necessary, when and how should the trustee be replaced? Who is eligible to be the trustee? These issues should be addressed in this separate article dedicated to the trustee.

These are the most important provisions that must be included in an indenture agreement. Note that an indenture is usually a long, complex agreement laying out in great detail the rights and duties of bond issuers and bond holders. Miscellaneous provisions addressing communication by holders of notes to other holders, the liability of directors and officers of the issuing company, governing law, severability, and other boilerplate contract provisions must also be included to round out a complete and enforceable indenture.

Popularity: 7% [?]

A severance agreement, also called a termination or separation agreement is a written contract between a company and a terminated employee in which the employee is paid for relinquishing certain rights. The employees in question are almost always top executives.Those executives who receive severance agreements are most often:

1. Executives who are caught up in a round of layoffs; or

2. Executives who pose a potential liability to the company.

The crux of the agreement is the executive’s promise to drop his legal claims against the company in exchange for remuneration. A claim that the executive might have against the company would most likely be:

1. For wrongful termination;

2. For discrimination; or

3. For disputed wages or benefits.

No law obligates companies to offer severance pay. But if a severance agreement is used, it must allow the executive time to consider it and to revoke his acceptance. If an executive counteroffers the company’s agreement, he is effectively rejecting the company’s offer and risks losing it. Importantly, the severance agreement must offer the executive something additional for his decision to waive his rights, beyond what the executive is already owed.

There are a few basic elements to the severance agreement:

· Compensation (base pay, bonuses, stock options, even health benefits);

· Restrictive covenants (agreements not to bring claims against the company);

·Other agreements (company will provide letters of recommendation, help the executive get another job);

· Confidentiality and non-compete clauses (may not be overly broad so as to prevent an executive from working); and

· Boilerplate provisions.

Popularity: 10% [?]

A severance agreement is a formal written agreement between a company and one of its executives to compensate the executive for relinquishing certain of his rights in the event that his employment is terminated by the company.

Two common scenarios in which the severance agreement is present are 1) when a company lays off a number of employees, including the executive, and 2) when a company desires to let go of a liability in the person of a specific executive. In these cases, the company will entice the executive, prior to his termination, to sign a severance agreement in exchange for giving up certain of his rights. Primarily, these rights are claims that the executive might bring against the company for disputed wages, discrimination, or wrongful termination.

Severance agreements are not compulsory. But they are a form of goodwill, for the terminated executive can be mollified and the remaining executives can be comforted through their use. No law obligates a company to provide severance agreements. However, if a company uses them, the company and the agreement must conform to certain legal strictures. For one, the agreement must be in writing. For another, the company must allow the executive a reasonable period of time to consider the agreement and to consult a lawyer. Additionally, the executive is afforded a statutory period of time in which he may revoke his acceptance of the agreement.

Importantly, despite the fact that the severance agreement has been labeled a legal bribe, the existence of severance agreements does not give companies carte blanche to intimidate their executives. That is, a severance agreement must offer the executive an additional incentive to what he is already due. The company may neither offer to pay the executive what he has already earned (salary, bonuses, benefits), nor threaten to withhold the same. The severance agreement is meant to be an additional carrot.

It may happen that a company will have a de facto severance agreement, whereby executives are compensated in the event of termination, but no written company guidelines exist to govern the process. This can be tricky for both sides, but if the executive can establish company patterns that support a de facto severance system then he will likely prevail.

An executive may reject the agreement and perhaps should if he believes he has a legitimate grievance against the company that may entitle him to greater compensation than what the severance agreement offers. Alternatively, he may also counter the company’s offer with a more favorable one. There is, however, a caveat. The executive’s counteroffer is effectively a rejection of the company’s offer, and the company is not obliged to maintain its offer after the executive has put forward a counteroffer. That most companies do just this in the normal course of business should not overshadow the fact that a counteroffer could theoretically leave the executive empty handed after his termination.

Severance agreements consist of compensation elements (base pay for a year or several; bonuses; stock options; health benefits perhaps); restrictive covenants (declarations not to bring claims against the company; turning over of proprietary company material); and other agreements (the company’s agreement to provide letters of recommendation or to help finding the executive another job). Many agreements also contain confidentiality and non-compete clauses that limit the executive’s ability to hurt the company after his termination. These clauses must protect the company’s legitimate business interests without impinging on the executive’s ability to work. It happens, of course, that companies overzealously protect themselves and try to hold their executives to unreasonable confidentiality and non-compete clauses.

Popularity: 6% [?]

The legal transfer of ownership of shares of stock is a relatively painless process. It is affected by way of a stock purchase agreement, which is a written agreement between the owner of shares of stock (seller) and the party who wishes to purchase these shares (buyer).

For a stock purchase agreement to be valid, and for the transaction between buyer and seller to be consummated, the agreement must contain certain pertinent information. For one, it must identify the parties, as well as the corporation whose shares are being transacted. The agreement delineates the number and type of stock to be sold, along with the purchase price per share. The parties will have negotiated this latter point, based on the current fair market price of the stock. Further, the agreement records the time and date of the transaction.

The stock purchase agreement also has a clause in which the seller represents and warrants about the corporation and the seller’s ownership of the shares. The seller attests to the fact that the corporation is legally incorporated and in good standing. He also confirms that he has legal ownership of the shares in question and is empowered to sell these shares.

The buyer will have agreed to the purchase price and thus signs the agreement, as do witnesses, attesting to the transaction. For his part, the seller signs the agreement and endorses over to the buyer the certificates of the shares being sold. He then delivers these certificates in exchange for whatever consideration he receives in the deal. The transaction is thus effected.

Most stock purchase agreements do not constrain the seller to sell only to certain parties, but some do. One is the buy/sell agreement, of which there are three main varieties. These three types of buy/sell agreements are differentiated by who is allowed or obligated to buy the seller’s shares and when. For instance, in a redemption agreement, it is the corporation that is obligated to buy the seller’s stock. The corporation will do so in the event of the seller’s death, disability, or leaving the corporation. In a cross-purchase agreement, it is the remaining or surviving shareholders that purchase the seller’s stock. A hybrid agreement allows both the corporation and the remaining stockholders to purchase the seller’s shares, but the operative element is the timing of the purchase, the corporation has right of first refusal, then the other shareholders, then the corporation must purchase whatever balance of shares remain.

If the parties keep in mind the basic elements of the stock purchase agreement, the transfer of ownership can be achieved fairly easily.

Popularity: 7% [?]

Without the license agreement, the digital age may look very different from the one that exists today. License agreements, like those used by software manufacturers to license and protect their products, allow owners of proprietary material to distribute them for public consumption yet also receive royalties in exchange. Without the protections in license agreements, the publication of original thought would be that much harder.

A license agreement is a written agreement in which one party (the licensee) is granted the revocable right to perform an act by another party (the licensor). Without the licensor’s permission to perform this act, the licensee’s performance would be illegal. From operating a restaurant to driving a motorcycle to using a word processing application, the act in question can be nearly anything. Meanwhile, the licensor’s grant, memorialized in the license agreement is represented in a document called the license, which is usually of a finite duration and may be exclusive or non-exclusive.

License agreements are used often in connection with copyrighted material such as artwork, books, music, and videos’ content, in other words. While this trend shows signs of shifting toward greater liberalization, owners of copyrighted material generally do not want to give up ownership of their material; yet they also want to distribute their work for public consumption. The answer to this dilemma is to license their creations to the public in exchange for royalties - fees that the public pays to listen to the music or use the artwork. Once the license expires, the right to use the material reverts back to the owner.

In the IT world, license agreements are highly prevalent. The software license agreement, also known as the end-user license agreement (EULA), allows software makers to distribute their wares to the public for a fee. A widespread iteration of the EULA is called the shrink-wrap license, named primarily because of the way the license agreement is displayed on the outside of the software’s packaging. By opening the software package, the consumer agrees to abide by the terms of the license.

A similar EULA is called the click-wrap license, which is displayed to the consumer during installation of the software on a computer. Certain types of these EULAs have created legal problems because they are not visible to the consumer in their entirety prior to purchasing the software. In other words, the consumer must purchase the software to see the complete license agreement’a catch-22 if there ever was one.

Whether EULAs are displayed on the software packaging or are found in the installation phase of the software, they generally hold the end-user to certain basic restrictive covenants. They seek to restrict the consumer from making unauthorized copies or modifications to the software; to load it only on one computer; to limit the manufacturer’s liability, and to disclaim warranties.

License agreements require several important provisions. First, the parties must define the scope of the license to be granted. The scope will cover what is to be granted, for how long, to whom, in what capacity, and so forth. Essential rights and restrictions will be laid out, without which the licensor would likely never agree to license the material. Next, in significance, is the provision dealing with consideration - what will the licensor receive in exchange for licensing its work? After these all-important provisions have been determined, the license agreement should discuss points such as remedies in the event of breach, indemnification for the parties, warranties and representations, if any, disclaimers on liability and boilerplate provisions like governing law, severability and survival.

Popularity: 7% [?]

The most common way for a corporation to buy back its outstanding stock from its shareholders is through the stock redemption agreement, which is a type of stock purchase agreement that constrains to whom shareholders may sell their shares. The aim of the redemption agreement is to restrict ownership and control of a corporation to a small group; thus, redemption agreements are more commonly found among smaller, more closely corporations. When a corporation and one of its shareholders (or partners in a partnership) conclude a redemption agreement, the corporation is obligated to buy back all of the shareholder’s shares at a predetermined price. With its own money, the corporation will affect the purchase upon the death or disability of the shareholder, or perhaps on a third, more specific event, which the agreement will identify.

Very often, a corporation will fund the stock purchase by way of a life insurance policy. That is, a corporation will buy a life insurance policy for the shareholder in the amount of the shareholder’s interest in the company. However, the corporation, not the shareholder, will be both owner and beneficiary. The corporation also pays all the annual premiums on the policy. Upon the shareholder’s death, the corporation will receive the proceeds, which it will use to purchase the stock from the shareholder’s estate. This is what is known as an insured stock redemption agreement.

Redemption agreements have a number of advantages. First, they are uncomplicated documents, consisting of only a few basic articles (the purchase, the price, representations and warranties, and a few boilerplate clauses). Second, the insurance policy arrangement is simple, one policy per shareholder. Third, the policies count as assets for the corporation and do not burden the shareholders, because it is the corporation that pays the yearly premiums. And fourth, after the termination of the redemption agreement, the corporation has access to cash from the life insurance policies to fund deferred compensation obligations.

Equally, redemption agreements have certain disadvantages. For one, there is no step-up in basis. That is, the remaining or surviving shareholders’ basis in the company remains the same, even if their individual interests increase. Next, corporate creditors may be able to access and deplete the cash supplies in the insurance policies. Also, the proceeds from the life insurance policies are likely subject to an alternative minimum tax. Lastly, if the corporation is in a higher tax bracket than its shareholders, the yearly premiums could be more costly than they would be otherwise.

As the redemption agreement is not an all-inclusive panacea, other variations of the stock purchase agreement have sprung up. They are the cross-purchase agreement and the hybrid agreement.

In the cross-purchase agreement, it is the other shareholders, not the corporation, that are obliged to purchase the deceased or retiring stockholder’s shares, assuming that is, that they have the desire and the money to do so. In the insured version of this agreement, the stockholders all have cross-owned life insurance policies for all the other stockholders. Moreover, when a shareholder dies, not only is his stock bought, but also his share of the life insurance policies, which for a more widely held corporation can be a nearly unmanageable number. If it sounds complicated, it is.

That is why the hybrid agreement was developed - to combine aspects of both the redemption agreement and the cross-purchase agreement. In a hybrid, the corporation has a right of first refusal to purchase the shares. If it does not, then the other shareholders may purchase them. And if they do not, then the corporation must purchase the shares.

Despite their inherent disadvantages, redemption agreements are still widely used stock purchase agreements. Their simplicity is hard to discount and will likely keep them in circulation for the foreseeable future.

Popularity: 8% [?]