Employee Share Option Agreements are crucial instruments for companies seeking to align employee interests with corporate success and retain key talent. These agreements, governed by English and Welsh law, provide employees with the opportunity to acquire company shares under specified conditions. The agreement must comply with UK tax legislation, particularly ITEPA 2003, and often forms part of either tax-advantaged schemes (such as EMI) or non-tax-advantaged arrangements. An Employee Share Option Agreement typically includes detailed provisions on vesting schedules, exercise procedures, and good/bad leaver provisions, while ensuring compliance with corporate and securities laws.
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1. Parties: Identifies the company granting options and the employee receiving them
2. Background: Context of the agreement and reference to any share option scheme
3. Definitions: Key terms including Option Price, Exercise Period, Shares, and Vesting Schedule
4. Grant of Option: Terms of the option grant including number of shares and exercise price
5. Exercise of Option: Conditions and process for exercising options
6. Vesting Provisions: Timeline and conditions for option vesting
7. Lapse of Options: Circumstances under which options will lapse
8. Tax Obligations: Tax liabilities and responsibilities
9. Transferability: Restrictions on transfer of options
1. Change of Control Provisions: Rights and obligations upon company sale or merger - recommended for companies considering future sale or IPO
2. Market Stand-off Agreement: Restrictions on sale during IPO period - recommended for companies planning IPO
3. Clawback Provisions: Company's right to recover options in specific circumstances - recommended for senior executive agreements
4. Non-Competition Clauses: Restrictions post-employment - recommended for senior employees or when protecting company interests
1. Schedule 1: Option Certificate: Formal documentation of option grant details
2. Schedule 2: Exercise Notice: Template form for exercising options
3. Schedule 3: Articles of Association Extract: Relevant provisions affecting option shares
4. Schedule 4: Share Option Plan Rules: Full rules of the share option scheme
5. Appendix A: Vesting Schedule: Detailed timeline of vesting dates and conditions
6. Appendix B: Tax Treatment Summary: Overview of tax implications and requirements
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