Desciption of a Restricted Stock Unit Agreement - 4/Sept/2008

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A Restricted Stock Unit Agreement is an agreement made between a
company and a recipient or purchaser of that companies restricted
stock, usually an employee. A Restricted Stock Unit is a grant valued
in terms of company stock, but in such a situation, company stock is
not issued at the time of the grant. After the recipient of a unit
satisfies the vesting requirement, the company distributes shares, or
the cash equivalent of the number of shares used to value the unit.
Depending on plan rules, the participant or donor may be allowed to
choose whether to settle in stock or cash.



Common in corporate settings, Restricted Stock Unit Agreements generally address the following issues:



1. Parties. The name of the company and the employee must be identified.



2. Number of Shares and Price. The amount of restricted shares, the
price of each share, and the total purchase price should be identified.
When and how payment is to be made should also be discussed. Details
regarding the purchase price may not be important if the shares are
given to the employee for free.



3. Covenant Not to Sell. The most important provision of the agreement
is the employee's promise not to sell, assign, transfer, or otherwise
dispose of any or all of the restricted shares until the termination
date(s) set forth.



4. Termination Dates. This provision should set forth the dates that
the restrictions on selling the stock terminates. The date may be the
same for all shares or may be broken off. For example, perhaps 1/3 of
the shares lose their restrictions after one year, 1/3 the next

year, and 1/3 the following year.



5. Termination of Agreement. The agreement should refer to specific
provisions of the employment agreement in terms of addressing the issue
of the termination of the employee's employment with the company.
Generally, if the employee is terminated without cause, then he gets to
keep the shares and they lose their restricted status. If the employee
is terminated for cause, then the employee loses the shares altogether.



6. Clear Explanation of Restricted Status. The agreement should clearly
notify the employee that the certificate for restricted shares shall
bear a legend to the effect that the transferability of each share is
restricted in accordance with the provisions of the agreement and that
they have not been registered with the SEC and thus they may not be
sold or transferred.



7. Employee Representations. The employee must represent and warrant to
the company that the restricted shares are being acquired for him or
her solely for his or her own account and not with a view to, or for
sale in connection with, the distribution thereof.



8. Miscellaneous. A provision should be included that states that the
agreement, together with the Employment Agreement, embodies the entire
understanding between the company and the employee and supersedes all
prior agreements and understandings relating to the matter covered.



These are the most essential provisions of a Restricted Stock Units
Agreement. Generally entered into by an employer and an employee, this
agreement is a critical part of enticing the employee to stay with the
company and, by tying the employee's financial interests to those of
the company, motivates the employee to perform at his her best.

Mark Warner is a Restricted Stock Unit Agreement Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents online drafted by the top law firms in the US that you can download, edit and print. Search For Free at http://www.RealDealDocs.com.

View all articles written by Mark Warner

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