Our template employee share option plan deed and template share option offer letter have been firm favourites in our template library since we introduced them in 2014. Today, we’ve added a new set of templates, giving companies more choice for putting an ESOP together.
Take a look at our new employee share option plan terms template and accompanying offer letter template.
The new employee share option plan terms and offer letter templates depart from our existing ESOP templates in a couple of ways – structure, and claw-back opportunities. In this blog we’ll explain which one is a better fit for your company.
Our existing ESOP option deed and offer letter templates require a company to complete, and arrange to have signed, an option deed and offer letter for each employee.
The new templates take a different approach. The employee share option plan terms (global) document is a global set of terms which apply to a company’s ESOP as a whole. The terms describe the general t’s and c’s (how and when options can be exercised, what happens on a liquidity event, when options might be cancelled, what claw-back arrangements apply, etc.).
With our new templates, any time the company is ready to grant options to a team member, the company rolls out an offer letter describing the details of the team member’s grant (number of options, exercise price, vesting schedule), but otherwise referring back to the employee share option plan terms document by attaching it as a schedule to the letter. No more worrying that you’ve issued options to different team members on inconsistent terms, and no need to deal with signing any more than one document.
For this reason, we think anyone setting up an ESOP with more than 5 participants will benefit from these new ESOP templates. This structure is commonly used in ESOPs overseas, and is becoming increasingly common in NZ.
The new templates include optional drafting for use by companies who wish to provide for some level of claw-back of the recipient’s vested options, and any shares that have been issued to the recipient upon exercise of vested options, if they cease to work for the company.
Claw-back arrangements give the company the ability to remove ex-team members as shareholders, and flexibility to reissue more options to incoming team members out of the overall ESOP pool. They won’t be appropriate for every company, though (in which case the optional drafting can be deleted).
We’re expecting the new templates to be popular. However, the original ESOP option deed and offer letter still have their place, so those templates aren’t going anywhere. The option deed and offer letter templates are your better bet if, for example, you’re a small company who’s only intending to grant options to one or two people, and/or you’d like to be able to customise the t’s and c’s for each ESOP participant.
Happy ESOP-ing, and feel free to let us know if you’ve got any feedback.
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