The Agreement specifies the following:
- The size of the Board
- Board Compensation – typically, investor Directors to not receive compensation for early stage private equity companies. Only independent Directors to and at a rate of between 0.025% and 0.05% of the company per year of service.
- Board composition – typically one from the Common share class, one or from the Series A share class, the CEO, and one or two independents (independent directors are hard to find!).
- It specifies the process for removing a Director and limits the liability for electing duly nominated/elected Directors.
- The other important detail in this agreeing is the ability to authorize stock pending approval of the Shareholders, who must vote as a class and have 51% of each class voting affirmatively.
- The agreement specifies “Drag-Along Rights,” which are the rights of the majority of shareholders to cause the company to be liquidated (acquired typically). This means a vocal minority may not stall or stop an acquisition that 51% of all shareholders who believe is in the best interests of the company and shareholders.
- The agreement ensures that all parties have the right to liquidate their shares if the majority of shareholders vote to do so. None may be left behind.
- The agreement defines the actions and steps that are to be taken at the time of a liquidation event.
- The agreement specifies how new shares, options, warrants, etc are treated, essentially binding them to these terms.
- The agreement specifies that any disputes will be subject to a specific court in a specific state and shall waive rights to a jury trial for expedience and cost. Further, any unresolved claims shall be subject to binding arbitration for the same reasons. And, typically, the prevailing party’s bills are paid by the looser. This prevents both parties from stone-walling and filing frivolous lawsuits.
For more information:
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