Phantom share subsidies and acquisition agreements align employees` motivations with those of owners, i.e. the increase in share prices, avoiding both taxable remuneration and the need to give beneficiaries voting rights or other rights generally associated with shares. Stock appreciation rights (SARs) are similar to a stock-based shadow program. SARs are a form of employee bonus compensation equivalent to the appreciation of the company`s shares over a specified period of time. When entered near employee stock options (ESOs), SAR are beneficial to the employee when the company`s share price rises. The difference with SARs is that employees do not have to pay the exercise price, but receive the sum of the increase in shares or cash. 5. Entire Agreement; Applicable law. The Plan is incorporated herein by reference.
The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and, in their entirety, supersede all prior obligations and agreements of the Company and you with respect to the subject matter of this Agreement and may not be substantially modified for your benefit unless required by a letter signed by you and the Company. This Agreement is governed by the laws of internal substantive laws, but not by the choice of law rules of the State of Delaware. When phantom shares are allocated, a « delay mechanism » occurs, where the actual financial disbursement takes place after a long period of time. Two to five years are common for a ghost share payment. However, it depends on the agreement between the company and the employees. The company does not want to make the advisor a shareholder with his 1000 shares, so it pays him the economic value of the shares. While the economic value is $5,000, he receives $4,000 as the final amount because he has to buy the shares to receive the payment. In other words, the employee does not receive equity in the company, does not become a shareholder, does not acquire any rights as a shareholder (to attend meetings or to consult the books) and has no connection with the company, but receives a cash payment according to the terms of the plan and the value of the shares of the company. For accounting purposes, phantom shares are treated in the same way as deferred cash compensation. Since the amount of the liability changes each year, an entry is made for the accumulated amount. A loss of value would reduce liability. These entries are not time-dependent.