EMPLOYEE SHARE OWNERSHIP PLAN (ESOP) PACKAGE

• we will send you a list of discussion points to consider and arrange a consultation with you;
• once you’ve had an opportunity to consider the discussion points set out in the welcome pack, you will consult with us (in person / over Skype / by phone). As part of our commitment to our goal of removing all obstacles to engaging with clients, this meeting / Skype / phone call will be free of charge. The more prepared you are for the consultation, the more value you’ll get out of it – we will answer any questions that you may have during the consultation regarding your ESOP and the costs related to finalising it;
• if you choose to engage with us, we will prepare a framework document which summarises the key features of your ESOP – this is intended to be easy and quick to understand – so that we are all on the same page before we start the drafting; and
• we will then create the ESOP package documents, which will consist of:
  • the ESOP plan (or rules): which is prepared on the broad terms of the framework document;
  • a template participation agreement: which is updated for each employee who participates in the ESOP. This allows you to tweak each employee’s package, such as number of shares and vesting terms or other conditions for receiving shares;
  • an explanatory document: this is an easy to understand document summarising the ESOP and is intended to be given to prospective participating employees, together with their participation agreements;
  • a memo: if you think a large number of employees will be participating in the ESOP, then you may want to appoint an ESOP compliance officer. We will send you a memo explaining your options in terms of the Companies Act in this regard.; and
  • the resolutions: these resolutions will need to be passed by the board of your company, and the shareholders, in order to adopt the ESOP.

• eligibility: who will be eligible to participate in your ESOP? Selected employees only? Or selected consultants, advisors and independent directors as well?
• vesting: the idea is that a participating employee only ever gets a financial benefit from his/her shares after some conditions are met. Usually, this means that the employee must serve a minimum period of employment – the “vesting period”. However, you can set other conditions too (for example, performance milestones). So, if the employee does not fulfil the conditions you set (for example, the employee fails to serve the minimum employment period), then the company may be entitled to buy back all or some shares (i.e. the unvested shares) for little or nothing. We will discuss with you what the vesting period should be (i.e. how long each employee takes to earn the full financial benefit of his/her shares).
• accelerated vesting: in some cases, vesting of a participating employee’s shares can be accelerated. We will go through conventional scenarios for you to consider.
• good leavers and bad leavers: if participating employees leave the employ of the company, we would normally distinguish between good leavers and bad leavers. This is important because an employee may receive much less for their shares if they are a bad leaver. We will walk you through the different descriptions of good leaver vs bad leaver, and what the effect will be of each category on valuing an employee’s shareholding.
• restrictions: typically ESOP shares are “restricted” in order to avoid paying income tax on the date when employees first receive their shares. “Restrictions” are terms that prevent an employee from being able to sell their shares for a minimum period of time. The effect of including restrictions is that it delays the liability to pay income tax until a liquidity event (i.e. until the shares can be sold to pay for the income tax). However, this has implications for the amount of tax paid, and we will walk you through those issues for consideration too.

One of our primary goals as a firm is to remove all obstacles to engaging with our clients. Our continued commitment to this goal is demonstrated by our offer of an initial consultation free of charge. If you choose to engage with us after our consultation:

• our initial fee for the preparation of the framework document will be as agreed between us during the consultation; and
• the consultation and framework document will put us in a position to give you an exact fee quote for creating your ESOP package documents. You will have no obligation to accept that fee quote or proceed with our firm.

Once the ESOP plan (or rules) and corresponding documents have been finalised and approved by the board and shareholders of the company, then the ESOP will need to be implemented. This will be done by way of issuing shares to the participating employees, issuing share certificates to them and updating the company’s securities (share) register. We would be happy to assist in any of these processes.