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.
In Kansas, the Right of First Refusal (ROAR) and Co-Sale Agreement are legal concepts used in various business transactions, primarily in the context of selling company shares. Let's explore these agreements in detail and discuss their different types. The Right of First Refusal (ROAR) is a contractual provision that grants a shareholder or investor the right to purchase additional shares in a company before those shares are sold to a third party. Essentially, it gives the original shareholder an opportunity to maintain their ownership stake by matching the terms and conditions of a proposed sale. By exercising their right, the shareholder can effectively prevent dilution of their ownership interest. Kansas law recognizes two general types of ROAR agreements: the "Stand-Alone" ROAR and the "Embedded" ROAR. The Stand-Alone ROAR agreement is an independent, separate document that establishes the terms and conditions of the right. On the other hand, the Embedded ROAR agreement is incorporated within the company's bylaws or operating agreement. The Stand-Alone ROAR agreement allows the shareholder to have more control over the terms and negotiation process, as it is drafted as a separate document solely focused on the ROAR provisions. It specifies the triggering events, the process for exercising the right, deadlines, and any limitations or restrictions. Additionally, it may include provisions on price determination methods, funding mechanisms, and dispute resolution procedures. Conversely, the Embedded ROAR agreement is included within the company's foundational documents, such as the bylaws or operating agreement. This means that all shareholders automatically agree to the ROAR provisions when they become shareholders, without the need for individual negotiation or execution of a separate agreement. The Embedded ROAR is usually broader in scope, covering various types of transactions, and is subject to amendment by shareholder consent or according to the company's constitutional documents. Co-Sale Agreement, also known as tag-along rights or "co-drag" rights, is a related concept that protects minority shareholders by granting them the right to sell their shares alongside a majority shareholder or investor. If a majority shareholder receives an offer to sell their shares, the Co-Sale Agreement allows minority shareholders to sell their shares on the same terms and at the same price. This avoids a situation where a majority shareholder sells their shares while leaving minority shareholders with an illiquid investment or limited market opportunities. Kansas recognizes both Stand-Alone Co-Sale Agreements and Embedded Co-Sale Agreements. The Stand-Alone Co-Sale Agreement is a separate contract that outlines the right to participate in a sale alongside the majority shareholder. It typically covers the triggering events, notice requirements, timelines for exercising the right, and provisions addressing price and dispute resolution. Embedded Co-Sale Agreements, like Embedded ROAR agreements, are included within the company's foundational documents and automatically bind all shareholders. They ensure that minority shareholders are protected by allowing them to sell their shares on the same terms and conditions as the majority shareholders, without the necessity of separate negotiation or execution. In summary, Kansas recognizes the Right of First Refusal and Co-Sale Agreements to protect the interests of shareholders and investors in business transactions. The agreements can be categorized into Stand-Alone and Embedded types, each with its own advantages and considerations. Understanding these concepts is crucial for anyone involved in buying, selling, or investing in companies in Kansas.
