Why is important to know what Restricted Award Agreement is?
A restricted stock award (RSA) is a form of equity compensation used in stock compensation programs. An RSA is a grant of company stock in which the recipient's rights in the stock are restricted until the shares vest. Restricted shares represent actual ownership of stock but come with conditions on the timing of their sale. Restricted stock is non-transferable and must be traded in compliance with special Securities and Exchange Commission (SEC) regulations.
Restricted stock refers to unregistered shares of ownership in a corporation that are issued to corporate affiliates. Equity refers to non-cash compensation that represents partial ownership in a company. Restricted stock is a form of executive compensation where non-transferable shares are issued to employees that come with conditions on the timing of the sale.
Restricted shares ownership begins when the shares are granted and not when vested. Vesting is known as the time period during which you unconditionally own the stock options that are issued to you by your company. Until you vest the stock options, you forfeit them if you were to leave the company.
Vesting period is usually 4 years with a 1-year cliff. A one year cliff means that you will not get any shares vested until the first anniversary of your start date. At the one year anniversary, you will have 25% of your shares vested. After that, vesting occurs monthly - 1/48th. If the person quits or is fired before that date, he gets zero. Each month they stay with the company, they get another monthly portion of shares vested.
In Newell Rubbermaid Inc. v. Storm (Del. Ch. March 27, 2014), the Court granted the company a temporary restraining order against a former employee for actions that appeared to violate the non-solicitation and confidentiality covenants of RSU agreements. Here are few lessons that employees who receive stock awards can learn from the Newell case.
The consideration of a stock award is not diminished or made illusory by the company’s right to terminate the employee at any time for any reason after making the award, which would cause the employee to forfeit the award.
Just because one award agreement does not impose restrictive covenants does not mean that the next one will not – and its corollary. It is never too late for a company to begin imposing restrictive covenants through its stock award agreements.
An employer’s case for enforcement of a non-compete provision will be stronger if the former employee’s work for a competitor also threatens a violation of the covenants of confidentiality and protection of trade secrets.
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