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  • Writer's pictureRobert M. Fields

9. Stock Restriction Agreements

a. It has been my practice to have individuals receiving shares of stock under stock options, SARs, restricted stock, RSUs and PSUs execute a stock restriction agreement containing very stringent provisions regarding voting, transferability of the shares after vesting, and call and drag-along rights granted to the company and/or the principal owner of the company. Usually, the individuals do not have put or tag-along rights. These stock restriction agreements often also give the company the right to call the stock upon the individual’s termination of employment for any reason, with the purchase price being determined by (i) a valuation of the stock or (ii) a formula based upon a multiple of EBITDA. Most important, these agreements often provide for a required sale of the stock back to the company or principal owner for a nominal amount (usually $1.00) if the individual is fired for “cause” or violates non-compete, non-disclosure restrictions, etc., even after the stock vests. In the case of profits interests in LLC, similar restrictions are usually contained in related LLC operating agreements.

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1. Stock Options

a. Design: i. A stock option consists of the right of an employee, director or independent contractor to purchase stock of the company at certain times by paying a pre-set exercise price. Although opt

2. Stock Appreciation Rights

a. Design: i. Generally, stock appreciation rights (“SARs”) consist of the right of the individual to elect (within a certain period of time set forth in the award) to acquire cash (or an equivalent v

3. Restricted Stock

a. Design: i. Restricted stock is composed of shares of stock of a corporation (regardless of whether a “C” or “S” corporation). The shares of stock are subject to forfeiture back to the company in th


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