The Phantom Share Agreement serves as a critical tool for companies seeking to provide equity-like incentives without diluting actual ownership. This document type is particularly valuable for private companies, family-owned businesses, or organizations with restricted ownership structures. Governed by U.S. law, particularly IRC Section 409A, the agreement details the grant, vesting, valuation, and payment terms of phantom shares. It provides a framework for long-term employee incentivization while maintaining existing ownership structures and avoiding complex securities registration requirements.
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1. Parties: Identifies the company and the participant receiving phantom shares
2. Background: Explains the purpose of the phantom share plan and company's intention to grant phantom rights
3. Definitions: Defines key terms including Phantom Shares, Fair Market Value, Vesting Date, Payment Event
4. Grant of Phantom Shares: Details of the phantom shares being granted, including number and grant date
5. Vesting Provisions: Specifies vesting schedule and conditions
6. Valuation Methodology: Explains how phantom shares will be valued
7. Payment Terms: Specifies when and how payments will be made upon vesting
8. Tax Provisions: Addresses tax withholding and Section 409A compliance
1. Change in Control Provisions: Addresses treatment of phantom shares in case of company sale or merger
2. Non-Competition Clause: Restricts participant's ability to compete with company
3. International Provisions: Addresses cross-border tax and regulatory issues for participants based outside the US
1. Schedule A - Vesting Schedule: Detailed breakdown of vesting dates and conditions
2. Schedule B - Valuation Methodology: Detailed explanation of how phantom shares will be valued
3. Schedule C - Section 409A Compliance Addendum: Detailed provisions ensuring compliance with IRC Section 409A
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