THE PHANTOM STOCK PLAN
PHANTOM STOCK AGREEMENTS
Without a doubt, the subject of phantom stock agreements is a hot topic at CEO Club roundtable meetings. Many CEOs want their employees to share in the growth of the business, but seek to avoid the complexity of minority shareholders lawsuits.
One solution is to utilize "phantom" stock. Usually this allows the employee to benefit to an appropriate degree when and if the company is sold or goes public. One of the New York members, Warren Schloatt of Sunburst, has installed an effective phantom stock agreement for his key employees. He was willing to share it with fellow CEO Club members. Thank you Warren.
we don't recommend you implement this program without
the professional advice. Certainly, Warren
is not responsible for your use of his document. You will
want your own legal advice to meet your own
needs. However, we all thank Warren for his generosity.
PHANTOM STOCK PLAN
ARTICLE 1: PURPOSE
1. Purpose. The purpose of this Phantom Stock Plan is to provide a means through which those key employees of the ____________ (the "company"), upon whom the responsibilities of the successful growth of the Company rest, can share in such growth, thereby strengthening their commitment to the Company.
2. Establishment. The plan is effective as of January 1, 1997.
ARTICLE 2: DEFINITIONS
For purposes of the Plan, the following definitions shall apply:
means a grant of one or more shares of Phantom Stock under
2. "Award Period" means the period January 1, 1997 through December 31, 1999.
3. "Board" means the Board of Directors of the Company.
4. "Code" means the internal Revenue Code of 1986, as amended.
5. "Common Stock" means the common stock of the Company, no par value per share.
6. "Company" means ____________, and any successor thereto.
7. "Designated Beneficiary" means either the person designated in writing by a Participant as the recipient of any payment due under the Plan upon the Participant's death or, in the absence of an effective designation, the Participant's estate.
8. "Disability" means the complete and permanent inability of a Participant by reason of illness or accident to engage in the principal duties of his employment.
9. "Eligible Employee" means any key employee of the Company who, in the opinion of the Board, will be substantially responsible for the continued growth and prosperity of the Company. A list of Eligible Employees of the Plan is set forth on Appendix A hereto.
10. "Participant" means an Eligible Employee who has been granted an Award under the Plan.
11. "Pre-Tax Profit" means the net income before taxes of the Company for a calendar year, as certified by the Company's certified public accountants.
12. "Phantom Stock Agreement" means an account established on the books and records of the Company which is credited with shares of Phantom Stock in accordance with Section 4.1.
13. "Plan" means the ____________ Phantom Stock Plan, as herein written and as may be amended from time to time.
14. "Realization Date" means an event described in Section 5.2 or Section 5.3.
15. "Shareholders" mean the shareholders of record of the Company's Common Stock immediately prior to an event described in Section 5.2 of the Plan.
ARTICLE 3: ADMINISTRATION
1. Administration. The Plan shall be administered by the Board. The Board shall have exclusive power to select Eligible Employees to receive Awards of Phantom Stock and determine the time or times, and the conditions subject to which, any Awards may become payable.
2. Authority to Make Rules and Interpret Plan. The Board shall have the authority to establish, adopt and revise such rules and regulations, and to make all determinations, relating to the Plan as it, in its sole discretion, may deem necessary or advisable. The Board's interpretation of the Plan or of any Awards granted pursuant thereto and all decisions and determinations with respect thereto shall be final, binding and conclusive on all Eligible Employees, Participants and other interested parties.
ARTICLE 4: AWARDS
1. Form of Grants. Awards under the Plan shall be in the form of shares of Phantom Stock, which shall be credited to a Phantom Stock Account to be maintained for each participant. Each share of Phantom Stock will be deemed to be equivalent in value to one share of Common Stock. The award of Phantom Stock under the Plan shall not entitle any Participant to any dividend or voting rights or any other rights of a shareholder of Common stock.
2. Number of shares Awarded. Subject to Section4.3, for each calendar year during the Award Period in which the Company's Pre-Tax Profit is at least one million dollars ($1,000,000), a Participant shall be awarded one-half (.5) or a share of Phantom Stock.
3. Conditions on Awards. A Participant shall not be awarded Phantom Stock for any year during the Award Period unless he is employed by the Company on the last day of such year; provided however that, in the event a Participant dies or terminates employment with the Company due to Disability, he (or his Designated Beneficiary in the event of his death) shall be awarded a pro rata share of Phantom Stock for the year of such termination based on the ration that the number of days during such year that the was employed by the Company bears to 365.
ARTICLE 5: FORFEITURE AND REALIZATION
1. Forfeiture. A Participant shall forfeit all shares of Phantom Stock credited to his Phantom Stock Account I the event his employment with the Company is terminated for any reason (other than death or Disability) prior to a Realization Date. In the event that a Participant's employment with the Company terminates due to death or Disability, all of his shares of Phantom Stock shall be forfeited on the third anniversary date of such termination if a Realization Date has not occurred.
2. Sale of the Company. In the event of the sale of all or substantially all of the assets of the Company, or of all or substantially all of the Common Stock of the Company, to a person or persons unrelated to the Shareholders (and other than to one or more Participants), each Participant (or a Participant's Designated Beneficiary in the event of the Participant's death) shall be paid a cash amount equal to (a) divided by (b), multiplied by, (c), where:
the number of such Participant's outstanding shares or
Phantom Stock as of such
date of sale;
b. equals the aggregate number of shares of Common Stock and Phantom Stock outstanding immediately prior to the date of sale; and...
c. equals the net proceeds to the Company or the Shareholders (as the case may be) resulting from such sale.
The Board shall have sole authority and discretion to determine the amount of the "net proceeds" resulting from such a sale. Without limitation, any and all determining transaction costs incurred in connection with any such sale shall be deducted in determining "net proceeds". The Board's determination in this regard shall be final, binding and conclusive on all Participants and other interested parties.
To the extent, if any, that the proceeds of such a sale are paid other than in cash and/or a lump sum payment, each Participant shall receive payment in substantially the same form and manner, and over the same period of time, as the Company or the Shareholders, as applicable, receive the net proceeds of the sale. At the option of the Participant, in lieu of foregoing, the Company shall issue an unsecured note to the Participant pursuant to which the Company shall promise to pay the amount due the Participant hereunder over the same time period, and in the same form, as the net proceeds of any sale are paid to the Company or the Shareholders, as the case may be.
1. Initial Public Offering. In the event that the capital stock of the Company becomes publicly traded on an established securities exchange, each share of Phantom Stock (or fraction thereof) credited to the Phantom Stock Account of a Participant shall immediately prior thereto or coincident therewith be converted into an equal number of shares of Common Stock.
2. Cancellation Upon Payment. Upon payment with respect to any Phantom Stock pursuant to Section 5.2 or conversion of Phantom Stock onto Common Stock pursuant to 5.3, such Phantom Stock shall be cancelled.
ARTICLE 6: DILUTION AND OTHER ADJUSTMENTS
1. Dilution. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitulation, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change, then if the Board shall determine, in its sole discretion, that such change equitably requires and adjustment in the number of or kind of shares of Phantom Stock then held in Participants' Phantom Stock Accounts, such adjustment shall be made by the Board and shall be conclusive and binding for all purposes of the Plan.
ARTICLE 7: AMENDMENT AND TERMINATION
1. Board May Amend or Terminate Plan. The Board may terminate, modify or amend the Plan, and add or delete Eligible Employees as it shall deem advisable; provided that the Board may not, without the consent of the affected Participant, impair any outstanding award or Phantom Stock.
ARTICLE 8: MISCELLANEOUS
1. No Effect Upon Benefits. By acceptance of any Award under the Plan, each Participant agrees that neither the Award nor any amount paid will affect the benefits under any benefit plan of the Company, nor shall the Award nor any amount pad under the Plan be considered compensation for purposes of ny other benefit plan or program of the Company.
2. No Right to Continued Employment. The receipt of an Award shall not give a Participant any right to continue in the employ or service of the Company, and the right to dismiss any Participant or terminate the services of any non-employee Participant is specifically reserved to the Company. The receipt of an Award with respect to any year shall not give a Participant the right to receive an Award with respect to any subsequent year. No employee or other person shall have any claim or right to be granted an Award under the Plan.
3. Non-transferabillity. No right or interest of any Participant in the Plan shall be assignable or transferable, or subject to any lien; provided that in the event of the death of a Participant, any outstanding shares of Phantom Stock shall be held for the benefit of his Designated Beneficiary.
4. No Rights as Shareholder. Nothing contained herein shall be deemed to convey upon any Participant or other person the rights of a shareholder of the Company.
5. Withholding. The Company shall be entitled to withhold taxes from amounts payable to Participants under the Plan such amounts as may be required by applicable law.
6. Tax Liability. The Company shall have no liability for any tax imposed on a Participant as a result of amounts paid or payable to such Participant under the Plan.
7. Governing Law. The rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of New York.