The Phantom Stock Agreement serves as a critical tool for Pakistani companies looking to attract and retain top talent without diluting actual equity ownership. This document type is particularly valuable when companies want to offer equity-like incentives but face restrictions on actual share transfers, or prefer to maintain existing ownership structures. The agreement, governed by Pakistani law, typically outlines the grant of phantom stock units, vesting conditions, valuation mechanisms, and payment terms. It must comply with various Pakistani regulations, including the Companies Act 2017, Securities Act 2015, and relevant tax laws. The document is commonly used in growth-stage companies, family-owned businesses, or subsidiaries of multinational corporations operating in Pakistan where traditional equity sharing might not be feasible or desired.
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1. Parties: Identifies the company and the employee receiving phantom stock rights
2. Background: Explains the context and purpose of the phantom stock arrangement
3. Definitions: Defines key terms including Phantom Stock Unit, Vesting Period, Valuation Date, and Payment Events
4. Grant of Phantom Stock Units: Specifies the number of phantom stock units granted and their initial value
5. Vesting Schedule: Details the vesting timeline and conditions for the phantom stock units
6. Valuation Mechanism: Explains how the phantom stock units will be valued, including calculation methodology
7. Payment Terms: Specifies when and how payments will be made for vested phantom stock units
8. Rights and Limitations: Clarifies that phantom stocks do not constitute actual equity or voting rights
9. Tax Provisions: Addresses tax implications and responsibilities for both parties
10. Termination Provisions: Details what happens to phantom stock units upon various types of employment termination
11. Confidentiality: Establishes confidentiality obligations regarding the agreement terms
12. Governing Law: Specifies Pakistani law as governing law and relevant jurisdiction
13. General Provisions: Standard contractual provisions including amendments, notices, and entire agreement
1. Change of Control: Addresses treatment of phantom stock units in case of company merger, acquisition, or restructuring
2. Non-Competition and Non-Solicitation: Include when additional restrictive covenants are desired
3. International Payments: Required when payments may involve foreign currency or cross-border transfers
4. Shareholder Approval: Include if corporate governance requires shareholder approval for the phantom stock plan
5. Dispute Resolution: Optional detailed arbitration or mediation procedures
6. Clawback Provisions: Include when company wants right to recoup payments under specific circumstances
7. Plan Administration: Include when establishing a committee or designated administrator for the phantom stock plan
1. Schedule A - Phantom Stock Unit Details: Details of granted units, including grant date, initial value, and any special conditions
2. Schedule B - Vesting Schedule: Detailed breakdown of vesting dates and percentages
3. Schedule C - Valuation Methodology: Detailed formula and procedures for calculating phantom stock unit value
4. Schedule D - Payment Procedures: Step-by-step process for executing payments, including required documentation
5. Schedule E - Tax Calculations: Examples and methodology for tax calculations under Pakistani law
6. Appendix 1 - Definitions: Extended definitions and technical terms
7. Appendix 2 - Forms: Standard forms for exercise notices, beneficiary designations, and other required documentation
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