The Phantom Unit Agreement serves as a critical instrument for companies operating in Malaysia who wish to provide equity-like incentives to employees without actual share issuance. This document type is particularly valuable for private companies, subsidiaries of multinational corporations, or organizations with restricted share transfer capabilities. It sets out the terms under which phantom units are granted, including vesting schedules, performance conditions, valuation methods, and payment terms, while ensuring compliance with Malaysian regulatory requirements. The agreement is structured to provide similar economic benefits to traditional share-based compensation while maintaining simplicity in administration and avoiding complications related to actual share ownership.
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1. Parties: Identifies the company (grantor) and the employee (grantee) entering into the agreement
2. Background: Explains the context and purpose of the phantom unit arrangement
3. Definitions and Interpretation: Defines key terms including 'Phantom Units', 'Fair Market Value', 'Vesting Date', 'Performance Metrics' and other relevant terms
4. Grant of Phantom Units: Specifies the number of phantom units granted and the terms of the grant
5. Vesting Conditions: Details the vesting schedule and any performance conditions that must be met
6. Valuation and Payment: Explains how phantom units will be valued and the payment mechanism upon vesting
7. Tax Obligations: Addresses tax implications and responsibilities of both parties
8. Termination of Employment: Outlines what happens to phantom units upon various types of employment termination
9. Confidentiality: Requires the employee to maintain confidentiality about the terms of the agreement
10. Governing Law and Jurisdiction: Specifies Malaysian law as governing law and defines jurisdiction for disputes
11. Amendment and Termination: Covers how the agreement can be modified or terminated
12. General Provisions: Standard boilerplate provisions including notices, entire agreement, and severability
1. Change of Control: Optional section addressing what happens to phantom units in case of company merger, acquisition, or restructuring
2. Clawback Provisions: Optional section allowing company to recoup payments in cases of fraud or misconduct
3. Non-Competition and Non-Solicitation: Optional restrictive covenants that may be included for senior employees
4. International Tax Provisions: Optional section for cases involving international employees or cross-border tax implications
5. Currency Conversion: Optional section specifying currency conversion methods if payments may be made in different currencies
1. Schedule 1 - Grant Notice: Details of the specific grant including number of units, grant date, and vesting schedule
2. Schedule 2 - Vesting Schedule: Detailed timeline and conditions for vesting of phantom units
3. Schedule 3 - Valuation Methodology: Detailed explanation of how phantom units will be valued
4. Schedule 4 - Performance Metrics: If applicable, detailed description of performance conditions affecting vesting
5. Appendix A - Form of Release: Template for release to be signed upon receipt of phantom unit payments
6. Appendix B - Tax Treatment Summary: Summary of tax implications and treatment of phantom unit payments
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