This review list is being supplied to you in order to inform you about the document in question and to assist you in preparing it for submission. This is a highly important move, and you should contact an attorney who specializes in employee stock ownership plans. This will serve as a starting point.
If you decide to go forward with the plan on your own, be sure you treat all employees equally, both at the top and at the bottom of the corporate ladder, otherwise the entire structure may be called into question and, in some cases, even destroyed.
- Make numerous copies of the document. Make sure that everyone in your organization who is engaged or might be involved with your ESOP gets a copy of the document.
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Employee Stock Option Plan of __________________ Corporation
Pursuant to a resolution of the Board of Directors, passed at a meeting on _________________, the following shall constitute the terms and conditions of the Employee Stock Option Plan (ESOP) of the corporation; the intent of the plan being to allow the corporation to issue incentive stock options under the relevant regulations of the Internal Revenue Code:
The maximum number of shares, which may be made subject to options under this plan, shall be.
The plan shall be administered by a committee entitled the ___________________ Corporation ESOP plan. Such committee shall consist of ___________________ members, appointed by the Board of Directors. Such committee shall consist solely of directors who are not eligible to participate in the plan, and further, were not eligible to participate in the plan within the year prior to their appointment, and shall have the following duties and obligations:
To determine the employees of the corporation who shall be entitled to participate in the plan;
To determine such rules and regulations as may be necessary to administer the plan;
The committee shall meet from time to time in its discretion, and may employ such legal, accounting and other staff as the committee may determine are necessary to properly discharge it duties.
The committee may from time to time grant options, provided, however, that all such options shall be subject to the following conditions:
First, that the purchase price of the shares of stock shall be 100% of the fair market price of the stock on the date that the options are granted, and,
Second, that the stock option shall be exercised no later than ___________________ months after issuance, and,
Third, that in the event of the termination of the employee due to death or disability, that the option may be exercised no more than ____________________ months after the date of death or disability;
Fourth, that the in the event of the termination of the employee for any other reason, that no option may be exercised more than _________________ months from the date of such termination.
Fifth, the aggregate fair market value of the options granted herein shall not exceed $____(____________________________ & _____/100 dollars) per fiscal year; however, any sums not used shall carry forward to subsequent fiscal years. The value of the options granted shall be determined as of the date that each option is granted.
Sixth, adopt and enforce such other regulations or policies as may be required for the options to qualify as incentive stock options under the Internal Revenue Code.
In the event that as of the date when an option is granted, any employee owns stock representing 10% or more of the shares eligible to vote and an option is granted to such employee, the minimum option price shall be 110% (one hundred ten per cent) of the fair market value at the time of granting of the option.
The ESOP committee may grant new options to an employee who has previously received options. However, such new options shall not be exercisable until all previously granted stock options have been exercised or have terminated due to lapse of time. The purchase price of such options shall be 100% of the fair market value of the shares on the date that the option is granted.
No right under the plan may be sold, assigned, pledged, or otherwise disposed of by the employee. In the event of the employee’s death, the options may be passed by the laws of wills or intestacy applicable to the employee. During the lifetime of the employee, only the employee or the employee’s legal representative may exercise any options granted herein.
The ESOP committee shall have the right to structure the options as it sees fit, including exercise in installments. The ESOP committee may also provide for the acceleration of the options in the event that:
The corporation is being acquired, which shall be defined as – the purchase of sufficient shares to elect a majority of the board of directors of the corporation through a tender offer or any equivalent offer, contract or scheme; a merger of the corporation into another corporation, whether or not the corporation survives; or, if in the judgment of the ESOP committee the corporation is being acquired by another corporation; which judgment shall be final.
The board of directors of the corporation shall be entitled to review all actions of the ESOP committee except that the Board of Directors may not increase the number of options which may be granted to an employee by the committee, or to grant options to employees not selected by the ESOP committee.
Prior to the exercise of any option, the committee may require that the employee execute such instruments or provide opinions of counsel as to the legality of the exercise of the option. In addition, the ESOP committee, may at its discretion employ such legal or accounting experts as it may determine necessary or useful and obtain such opinions as it may deem fit. The corporation shall not be required to fulfill any option when in the opinion of its counsel, which shall be final, the fulfillment of the same shall violate any regulations or laws applicable to such transactions by any state or the federal government or other authority.
If the corporation is recapitalized, such as by a stock split, reorganization, reclassification or other forms of capital adjustments, the committee shall have the right to make equitable adjustments to the options, which determination shall be final.
All members of the ESOP committee shall be entitled to full indemnification for their actions, provided that the same are taken in good faith, by the corporation. Such indemnification may be accomplished by contractual agreement or by the purchase of director’s insurance, or both. All members shall be indemnified to the greatest extent possible under the law.
The plan may be amended or discontinued by the Board of Directors at any time. The following amendments shall require the approval by the majority of shareholders:
the change in the maximum number of shares of common stock, which may be sold under the plan (except for those related to recapitalization as described above);
the requirements for eligibility in the plan or the benefits accruing to the beneficiaries under the plan.
No amendment or modification shall be entered into which will operate adversely on the tax affects of previous options.
Employee Stock Option Plan of __________________ Corporation
This review list is provided to inform you about this document in question and assist you in its preparation. This is a very serious step and you should consult a lawyer expert in the ESOP field. This will give you a start.
If you elect to go forward with the plan on your own, be sure to treat all employees equitably, high and low in the corporation, or the entire structure can be challenged and, on occasion, unraveled.
1. Make multiple copies. Make sure everyone has a copy in your organization that is involved or potentially involved with your ESOP.