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refers to rights of first refusal given by company management to the company’s investor. They are a common features in venture financings. The purpose of these first refusal rights is to protect the investor when a key management member decides to cash out his investment. Often used with co-sale provisions, the first refusal right enables the investor to prevent an unwanted party from becoming his partner by letting the investor purchase shares management proposes to sell. Most first refusal provisions entitle both the investor and the company to buy the shares. If the shares are for sale at an attractive price, the investor and remaining management may choose for the company to buy the shares so that they can be used to attract a qualified person to replace the selling manager. Sometimes, though infrequently, management can negotiate for first refusal rights from the investor in exchange for the first refusal rights given by management. When these rights are received, they are usually exercisable by both company and management. First refusal rights should terminate with a public offering or sale of the company. See: Buy-Sell Agreements, Co-Sale Agreements, First Refusal Rights (Company). |
