Shadow Equity Agreements are increasingly used by Austrian companies as an alternative to traditional equity participation, particularly in scenarios where actual share transfer is impractical or undesired. These agreements are commonly implemented when companies wish to incentivize key employees or contractors while maintaining their existing shareholder structure. The document outlines the terms of synthetic equity rights, including vesting conditions, valuation methods, and payment triggers, all structured within the framework of Austrian law. It provides detailed calculations for determining the beneficiary's economic participation in the company's value growth without conferring actual shareholder rights. This type of agreement is particularly valuable for startups and growing companies that want to offer competitive incentive packages while maintaining corporate governance simplicity.
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1. Parties: Identification of the company and the beneficiary of the shadow equity rights
2. Background: Context of the agreement, including the company's intention to grant synthetic equity rights
3. Definitions: Key terms used throughout the agreement, including 'Shadow Equity Units', 'Exit Event', 'Fair Market Value', etc.
4. Grant of Shadow Equity: Details of the shadow equity units being granted, including number of units and percentage of virtual participation
5. Vesting Provisions: Vesting schedule and conditions for the shadow equity units
6. Valuation Mechanism: Method for determining the value of shadow equity units, including timing and procedure
7. Payment Triggers: Events that trigger payment obligations, such as exit events, IPO, or other liquidation events
8. Payment Calculations: Formula and methodology for calculating payments due to the beneficiary
9. Tax Treatment: Tax implications and responsibilities of both parties under Austrian tax law
10. Confidentiality: Obligations regarding confidential information and trade secrets
11. Term and Termination: Duration of the agreement and circumstances under which it can be terminated
12. Governing Law and Jurisdiction: Specification of Austrian law as governing law and jurisdiction for disputes
1. Good Leaver/Bad Leaver Provisions: Specific provisions defining consequences of different types of employment termination
2. Anti-dilution Protection: Provisions protecting the relative value of shadow equity in case of corporate events
3. Tag-Along Rights: Virtual participation rights in case of majority shareholder sale
4. Employee Obligations: Additional provisions specific to employees, used when beneficiary is an employee
5. Non-Competition: Restrictions on competitive activities, typically included for key personnel
6. Dispute Resolution: Alternative dispute resolution mechanisms, such as arbitration or mediation
7. Assignment and Transferability: Provisions regarding whether and how rights can be transferred
8. Information Rights: Rights to receive company information and financial reports
1. Schedule 1 - Vesting Schedule: Detailed breakdown of the vesting timeline and milestones
2. Schedule 2 - Calculation Examples: Examples illustrating how payments would be calculated in various scenarios
3. Schedule 3 - Virtual Shareholding Certificate: Format of the certificate evidencing shadow equity rights
4. Schedule 4 - Valuation Principles: Detailed methodology for company and shadow equity valuation
5. Schedule 5 - Consent Forms: Required forms for spouse consent or regulatory compliance
6. Appendix A - Company Cap Table: Current capitalization table showing actual and virtual equity
7. Appendix B - Tax Treatment Summary: Summary of tax implications under Austrian law
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