Overview

While the Phantom Equity Plan establishes the overall framework, each individual grant requires its own award agreement specifying the exact terms: number of units, base value, vesting schedule, settlement triggers, and any restrictive covenants. This template provides the individual award agreement that sits under the plan, giving the participant a clear, binding document that defines their specific economic rights and obligations.

Designed to work in conjunction with the Phantom Equity Plan template, this agreement covers all the participant-specific terms that the plan intentionally leaves to individual grants, including detailed settlement calculations, termination scenarios, and comprehensive restrictive covenants that protect the company’s investment in its incentive program.

What This Template Covers

Grant Terms and Unit Economics. Specifies the exact number of phantom units granted, whether they are full-value or appreciation-only, the base value per unit, the reference equity interest, and confirms that the grant creates no actual equity rights — only a contractual right to future cash payments based on changes in enterprise value.

Vesting Schedule. Provides a detailed vesting schedule with specific dates and percentages, covering both time-based vesting (with cliff and graded components) and performance-based vesting milestones with committee certification requirements. Includes acceleration provisions for death, disability, and change of control events.

Settlement Mechanics. Walks through exactly how and when vested phantom units convert to cash payments, including the settlement calculation formula (with worked examples for both full-value and appreciation-only awards), triggering events, timing rules, installment election procedures, tax withholding, and Section 409A timing requirements including the specified employee six-month delay.

Termination Scenarios. Addresses seven distinct termination scenarios — death, disability, retirement, voluntary resignation, involuntary termination without cause, termination for cause, and constructive termination — with specific consequences for vested and unvested units under each scenario and post-termination settlement timing.

Restrictive Covenants. Includes comprehensive non-competition, non-solicitation (covering both employees and customers), confidentiality (with DTSA and whistleblower carve-outs), and non-disparagement provisions with defined scope, duration, and geographic limitations. These covenants protect the company’s legitimate business interests while providing additional consideration supporting the phantom equity grant.

Forfeiture and Clawback. Details six specific forfeiture events and financial restatement clawback provisions, with clear repayment mechanics for amounts already settled — ensuring the company can recover payments made to participants who subsequently engage in detrimental conduct.

Why Entrepreneurs Need This

The plan document alone is not enough — without a properly executed award agreement, individual grants lack the specificity needed to be enforceable. This agreement provides the participant with clarity on their exact economic rights while protecting the company through restrictive covenants and forfeiture provisions. It also creates the documented compliance record that tax counsel needs to confirm Section 409A compliance for each individual grant.

Key Provisions

Worked Settlement Examples. Includes three detailed calculation examples showing settlement amounts under different scenarios — full-value award, appreciation-only award, and a zero-appreciation scenario — so participants understand exactly how their payout will be calculated.

Double-Trigger CIC Protection. Provides both single-trigger and double-trigger change of control acceleration options, with a protection period for involuntary termination following a change of control — balancing participant protection with acquirer flexibility.

DTSA Whistleblower Carve-Outs. Includes required Defend Trade Secrets Act immunity notice and whistleblower protection carve-outs in the confidentiality provisions, ensuring compliance with federal law while maintaining robust trade secret protection.

When to Use This Template

Use this agreement each time you grant phantom units to a participant under your Phantom Equity Plan. It should be executed by both the company and the participant at the time of grant, with the specific terms (unit count, base value, vesting dates) filled in for each individual award. The agreement is designed to be used in conjunction with the Phantom Equity Plan template — the plan provides the framework, and this agreement provides the individual grant terms.

Part of the Montague Law Entrepreneur Forms Library — the largest free startup legal template library available.