This is a "Right of First Refusal and Co-Sale Agreement." It is entered into by the corporation and the purchasers of preferred stock. It gives the company and the purchasers of preferred stock certain rights of refusal and options upon the transfer of stock.
Delaware Right of First Refusal and Co-Sale Agreement: A Delaware Right of First Refusal and Co-Sale Agreement is a legally binding contract that governs the rights and obligations of shareholders in a Delaware corporation when it comes to selling their shares. These agreements are commonly used in the context of venture capital financings, mergers and acquisitions, or when a company wants to control who can become a shareholder. The Right of First Refusal (ROAR) in Delaware refers to the preemptive right given to existing shareholders to purchase a pro rata portion of any shares that another shareholder intends to sell. This ensures that existing shareholders have the first opportunity to buy shares before they are offered to an outside party. The ROAR helps maintain the ownership structure of the company by preventing unwanted dilution and ensures that the shares remain within the hands of a limited group of investors. The Co-Sale Agreement, also known as a Tag-Along Right, complements the ROAR. It provides minority shareholders with the right to "tag-along" and participate in the sale of shares by any majority shareholder. If a majority shareholder receives an offer from a third party to purchase their shares, the minority shareholders have the option to sell their shares on the same terms and conditions as the majority shareholder. This protects minority shareholders from being left out by providing them with an equal opportunity to sell their shares. In Delaware, there are no specific types of Right of First Refusal and Co-Sale Agreements dictated by law. However, the terms of these agreements may vary depending on the negotiations between the parties involved. Some key elements that may be addressed in a Delaware Right of First Refusal and Co-Sale Agreement include: 1. Trigger events: Events that may trigger the right of first refusal or co-sale provisions, such as the proposed sale of shares by a shareholder. 2. Notice requirements: Procedures for notifying shareholders of the intent to sell shares, including the timeline for responding to the offer. 3. Exercise period: The period within which existing shareholders must exercise their right to purchase the offered shares. 4. Purchase price: The price at which the shares will be sold, typically determined by fair market value or as otherwise specified in the agreement. 5. Sale restrictions: Any limitations on the ability of existing shareholders to transfer their purchased shares, such as a lock-up period or restrictions on further transfers. 6. Governing law and jurisdiction: The specific laws and legal jurisdiction that will be used to interpret and enforce the agreement. Delaware Right of First Refusal and Co-Sale Agreements, though commonly used, necessitate careful drafting and consideration of the rights and interests of all parties involved. Consulting legal professionals with expertise in Delaware corporate law is essential to tailor the agreement to the specific needs and circumstances of the shareholders and the corporation.
