When it comes to managing compensation for employees in a privately-owned company, phantom stock agreements can be a useful tool. Essentially, a phantom stock agreement is a contract between the company and an employee that promises the employee a share in the company`s value, without actually giving them ownership or a stake in the business.
If you`re considering using a phantom stock agreement in your company, it`s important to have a solid understanding of how they work and what should be included in the agreement. Here`s a sample phantom stock agreement that can give you an idea of what to include:
[Company Name]Phantom Stock Agreement
This Phantom Stock Agreement (“Agreement”) is entered into by and between [Company Name], a [State] corporation (“Company”) and [Employee Name] (“Employee”) on [Date].
1. Purpose of Agreement
The purpose of this Agreement is to provide the Employee with the opportunity to receive a share in the value of the Company as compensation for services rendered, without actually receiving ownership or a stake in the Company.
2. Phantom Stock
The Company shall grant the Employee [number] shares of “phantom stock.” Phantom stock represents a hypothetical share of stock in the Company and entitles the Employee to a cash payment equal to the value of [number] actual shares of stock in the Company, as determined by the Board of Directors in its sole discretion.
3. Vesting
The phantom stock granted to the Employee shall vest over [number] years, with [percentage]% vesting on each anniversary of the date of this Agreement. If the Employee`s employment with the Company is terminated for any reason prior to the vesting of all phantom stock, any unvested phantom stock shall be forfeited.
4. Dividends and Distributions
The Employee shall be entitled to receive cash payments equal to any dividends or distributions paid on actual shares of stock in the Company, as if the Employee were the owner of [number] actual shares of stock.
5. Payment
The Employee shall receive payment for vested phantom stock within [number] days following the date on which such phantom stock vests. The payment shall be in cash and shall be subject to all applicable taxes and withholdings.
6. Change in Control
In the event of a Change in Control (as defined below), the phantom stock granted to the Employee shall immediately vest in full and shall be payable within [number] days following the closing date of the transaction. For purposes of this Agreement, a “Change in Control” shall mean a merger, consolidation, sale of all or substantially all of the Company`s assets, or a change in the ownership or control of the Company.
7. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of [State].
8. Entire Agreement
This Agreement constitutes the entire understanding between the parties and supersedes all prior negotiations, understandings, and agreements between the parties.
9. Counterparts
This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
[Company Name]By: _____________________________
Title: ____________________________
[Employee Name]_____________________________
