The Phantom Equity Agreement serves as a crucial instrument for companies operating in Canada who wish to provide equity-like incentives to key personnel without diluting actual shareholding or complicated share transfer mechanisms. This document type is particularly valuable for private companies, companies with complex share structures, or those with foreign parent entities. The agreement details the grant of phantom units that mirror the value of company shares, including specific vesting conditions, valuation methods, and payment terms. It must comply with Canadian federal and provincial regulations regarding employment standards, securities laws, and tax requirements. This agreement is commonly used for employee retention, performance incentivization, and long-term alignment of interests between the company and key personnel.
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1. Parties: Identifies the company issuing the phantom equity and the recipient (typically an employee or contractor)
2. Background: Explains the context and purpose of the phantom equity grant
3. Definitions: Defines key terms including Phantom Units, Fair Market Value, Vesting Date, and other relevant terms
4. Grant of Phantom Units: Details the number of phantom units granted and their basic terms
5. Vesting Schedule: Specifies when and how the phantom units vest over time
6. Valuation: Explains how the value of phantom units will be calculated
7. Payment Terms: Describes when and how payments will be made for vested phantom units
8. Termination Provisions: Outlines what happens to phantom units upon various types of employment termination
9. Tax Matters: Addresses tax implications and responsibilities
10. Confidentiality: Requires the recipient to maintain confidentiality about the agreement and company information
11. General Terms: Standard contract provisions including amendments, notices, and governing law
1. Non-Competition and Non-Solicitation: Restrictive covenants to protect company interests, included when the recipient is in a senior position
2. Change of Control Provisions: Specifies what happens to phantom units in case of company sale or merger, included for senior employees or when company sale is contemplated
3. Clawback Provisions: Allows company to recoup payments in certain circumstances, typically included for executive agreements
4. International Tax Provisions: Additional tax clauses for cross-border arrangements, included when recipient is in different jurisdiction
5. Anti-Dilution Provisions: Protects value of phantom units in case of corporate restructuring, included in more sophisticated agreements
1. Schedule A - Phantom Unit Certificate: Details of the specific grant including number of units and grant date
2. Schedule B - Vesting Schedule: Detailed breakdown of vesting dates and conditions
3. Schedule C - Valuation Methodology: Detailed explanation of how phantom unit value will be calculated
4. Schedule D - Notice of Exercise Form: Template form for recipient to exercise vested phantom units
5. Schedule E - Beneficiary Designation Form: Form for designating beneficiaries in case of death
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