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Phantom Stock Option Agreement Template for Canada

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Key Requirements PROMPT example:

Phantom Stock Option Agreement

"I need a Phantom Stock Option Agreement for our Canadian tech startup to grant 1,000 phantom stock units to our new CTO, with quarterly vesting over 4 years starting March 1, 2025, and including special provisions for accelerated vesting in case of an IPO."

Document background
The Phantom Stock Option Agreement is used by Canadian companies seeking to provide equity-like incentives to key employees without diluting actual company ownership. This agreement type is particularly valuable for private companies, growing businesses, or organizations with complex ownership structures. The document establishes a contractual framework for granting, vesting, and exercising phantom stock units that track the value of company shares, providing cash payments based on share value appreciation. It includes comprehensive terms covering valuation methods, vesting schedules, exercise procedures, tax implications, and termination scenarios, all structured to comply with Canadian corporate, securities, and tax laws. This agreement is especially relevant when companies want to incentivize employee performance and retention while maintaining existing ownership structures.
Suggested Sections

1. Parties: Identification of the company and the participant receiving the phantom stock options

2. Background: Context of the agreement and purpose of the phantom stock option grant

3. Definitions: Key terms including Phantom Stock Unit, Fair Market Value, Grant Date, Vesting Date, Exercise Date

4. Grant of Phantom Stock Options: Details of the number of units granted and basic terms

5. Vesting Schedule: Timeline and conditions for vesting of the phantom stock options

6. Valuation Methodology: Process and formula for determining the value of phantom stock units

7. Exercise Procedures: Process and requirements for exercising vested phantom stock options

8. Payment Terms: Timing and method of payment upon exercise

9. Tax Withholding: Company's rights and participant's obligations regarding tax withholding

10. Termination Provisions: Treatment of phantom stock options upon various termination scenarios

11. Confidentiality: Obligations to maintain confidentiality of agreement terms and company information

12. General Provisions: Standard clauses including amendments, governing law, and notices

Optional Sections

1. Change of Control: Special provisions for corporate transactions or change in ownership - include if company anticipates potential sale or merger

2. International Tax Provisions: Special tax considerations for non-Canadian residents - include if participant is foreign national

3. Multiple Classes: Provisions for different classes of phantom stock units - include if program has different unit types

4. Clawback Provisions: Company's right to recoup payments - include if required by corporate policy

5. Non-Competition and Non-Solicitation: Restrictive covenants - include for senior employees or key personnel

6. Acceleration Events: Circumstances triggering accelerated vesting - include if offering this benefit

7. Shareholder Rights: Explicit disclaimer of actual shareholder rights - include if jurisdiction requires specific clarification

Suggested Schedules

1. Schedule A - Grant Notice: Details of specific grant including number of units, grant date, and vesting schedule

2. Schedule B - Valuation Formula: Detailed methodology and calculations for determining phantom stock unit value

3. Schedule C - Exercise Form: Template form for participant to exercise vested phantom stock options

4. Schedule D - Beneficiary Designation: Form for participant to designate beneficiaries

5. Schedule E - Tax Election Forms: Required tax forms and elections

6. Appendix A - Vesting Examples: Illustrative examples of vesting calculations and scenarios

7. Appendix B - Payment Examples: Illustrative examples of payment calculations

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶Òõ¶ÌÊÓÆµ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Relevant legal definitions
Clauses






























Relevant Industries

Technology

Financial Services

Professional Services

Manufacturing

Healthcare

Biotechnology

Retail

Energy

Real Estate

Telecommunications

Consulting

Software Development

Relevant Teams

Human Resources

Legal

Finance

Executive Leadership

Operations

Research and Development

Sales

Product Development

Engineering

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Technology Officer

Senior Vice President

Vice President

Director

Senior Manager

Department Head

Key Technical Staff

Senior Engineer

Principal Scientist

Sales Executive

Product Manager

Regional Manager

Business Unit Leader

Industries







Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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