Litigation Proceed Rights are essentially heavily restricted securities that are privately offered and cannot be transferred without the plaintiff’s consent, and then only if the transferee becomes a full party to the funding contract.
Unlike typical venture capital securities, litigation proceed rights are not convertible into anything other than cash, if and when the Proceeds have been received. Moreover, the rights are explicitly bought at a risk-discount to “face value” (1% of what the parties agree is the claim’s value at the outset of the deal.) Finally, no voting or other control rights are included with litigation proceed rights. Those features make the rights more akin to speculative bonds then the equity venture financiers acquire.
Here are the two basic definitions, Litigation Proceed Right and Litigation Proceed Right Certificate:
Litigation Proceed Right: the right to receive one percent (1%) of the Proceeds.
Litigation Proceed Right Certificate: a document in the form of Exhibit [ ] (i) reflecting ownership of a certain number of Litigation Proceed Rights; (ii) bearing a legend stating that the certificate and the rights it represents may not be transferred without the express, written consent of the Plaintiff and then only if the transferee becomes a party to this Agreement; (iii) acknowledging the rights and obligations created by Section 5.6 of this Agreement; and (iv) certifying the existence of a perfected security interest in the Proceeds Account [and any other security interest negotiated] sufficient to secure the Litigation Proceed Rights reflected in the certificate.