This may be too late for most companies – at least for 2015, but I wanted to get out a reminder to double-check your electronic equity award agreements and procedures. I blogged on this topic in April and May of last year after the release of a significant court decision (See “Restrictive Covenants in Stock Award Agreements: Critical Lessons for Employers, Executives, and Stock Plan Administrators”).
Courts have confirmed that the electronic delivery and acceptance of equity awards does not diminish the enforceability of the terms of the award agreement, including restrictive covenants. However, the structure and wording of electronic delivery and acceptance websites is important. The TPA generally will set up the electronic acceptance protocol, but the company can and should review it. Companies need to make certain that all terms and conditions are incorporated and available for recipient review. So-called “click-wrap” agreements/acceptance is vastly preferable to browse-wrap.
For example, here is a description of one such protocol:
- For a person to accept the awards, he or she must first select [indicate by clicking on a box] that she will accept the grant from a list of “Unaccepted Grants.”
- The award recipient would then navigate to a page that explains more fully how to accept the awards. On this page, a box titled “Grant Terms and Agreement” provides that “You must read your Grant Agreement and review the terms to continue.”
- Below this box is a hyperlink to a “Grant Agreement (PDF)” that the user can click to review the agreement. Underneath that hyperlink, a checkbox is accompanied by text in bold reading, “I have read and agree to the terms of the Grant Agreement.”
- Below this checkbox and above the “Accept” button, bold text provides, “To complete your Grant Agreement online, you must read and accept the terms outlined in the document posted above... Your grant acceptance will be final once you click Accept.” “Previous” and “Accept” buttons also appear below the checkbox, as does a link allowing the user to “Cancel.”
- Text under the “Accept” button reads “Submit Grant Acceptance” and “To cancel the transaction, click the Cancel link.”
The website should require the employee/recipient to acknowledge receipt of the full terms and conditions and, ideally, have them pop up on the screen. Of course, most users do not actually read the text of the Grant Agreement as provided in items 2 and 3, but courts have upheld this process.