Expertise/Mergers and Acquisitions

Service

Option Incentive Programmes

The programme links the remuneration of the company's key employees and partners to growth in the value of the business: they receive an interest immediately, a right to one in the future, or a cash payment without the transfer of an interest.

We are most often instructed by:

  • Owners attracting and retaining a key team
  • Companies preparing for investment or a change of owner
  • Partners, executives and employees who have been promised a stake

The information on this website is provided for information purposes only and does not constitute a public offer.

What the Service Includes

Timing and Fees
from 10business days
from RUB 300,000

Timing and fees are indicative and are confirmed when the engagement is agreed.

01 / Overview
When an option programme is used

An option programme makes it possible to link the long-term incentives of partners, executives and key employees to the company's results and growth in the value of the business. The specific model depends on the owners' objective and the nature of their relationship with the programme participants.

  • Retaining key employeesA participant's economic interest may be linked to length of service with the company, the achievement of specified results or the delivery of a particular project.
  • Attracting executives and expertsParticipation in the future value of the business may supplement fixed remuneration and serve as a long-term incentive for a key specialist.
  • Building a relationship with a partnerA stake or other economic interest may be acquired immediately or gradually, as agreed conditions are met and specified results are achieved.
  • Preparing the company for investment or a change of ownerA formalized programme makes it possible to determine in advance the rights of the key team and how they change on the arrival of an investor, a change of control or a change of owner of the business.
  • Formalizing existing arrangementsIf partners or employees have already been promised an equity interest or remuneration linked to the value of the company, the programme makes it possible to set out clear terms on which the relevant rights arise and are exercised.
  • Revising an existing programmeA programme may need to be changed as the business develops, when the participants change, when investment is raised or in other circumstances in which the original model no longer fits the objective.

Equity interests and phantom options

The mechanics of a programme can vary considerably. The same incentive objective can be achieved through an equity interest, a right to receive one in the future, or a cash equivalent linked to the value of the business.

  • An actual interest or a cash equivalentA participant may become a co-owner of the company or receive an economic return without acquiring the rights of a participant in the company. The choice of model depends on the owners' objectives and on how far equity participation by a particular person fits the way the business is organized.
  • Immediate or future participationAn interest may be granted when the programme is launched or acquired later once agreed conditions are met. Models are possible under which a participant's rights arise or are secured gradually.
  • Conditions of participationA participant's rights may depend on length of service, the achievement of financial or operational targets, the delivery of particular projects, the arrival of an investor, a change of owner of the business or a combination of several conditions.
  • Different structuresA programme is built using option mechanisms, arrangements between participants, a separate participation structure or a phantom model without the transfer of an interest; a combination of instruments is possible.

Acquisition of rights and exit from the programme

The programme determines who grants the interest or pays the remuneration, whose stake is used to form the programme and how the economic return is calculated. For actual equity participation, the rights of the other owners and the necessary company resolutions are taken into account.

The gradual securing of rights may depend on the length of participation or the achievement of targets. Such conditions are often referred to as vesting. The documents set out the targets themselves, how their achievement is confirmed and the consequences of early termination of participation.

The consequences of termination of employment, a change of role, a change of owner of the business or the arrival of an investor are also agreed. A change in the employment relationship does not in itself result in the loss of an interest held by the participant; the terms for returning or buying back the stake are documented separately.

The labels ESOP and VSOP describe the economic model of a programme but are no substitute for documenting it: a programme with actual equity participation and a phantom cash payment programme involve different rights and documents.

02 / Stages
Stages of the programme
  1. Owners' objectiveThe objectives of the programme, the range of participants and the time horizon are determined.
  2. ModelThe structure is chosen: an interest immediately, a right to an interest in the future or a phantom payment.
  3. TermsThe targets, the vesting procedure and the consequences of a participant leaving, the arrival of an investor or a change of owner are agreed.
  4. DocumentsThe general terms of the programme and the documents with participants are prepared.
  5. LaunchCompany resolutions are adopted and participants are admitted to the programme.
  6. AdministrationNew participants are admitted, rights are exercised, and the programme is amended or wound up.
03 / Outcome
Service Outcome
  • Programme modelAn equity participation or cash payment structure, with the conditions under which rights arise and are retained.
  • Programme documentsThe general terms and the participants' documents aligned with them, including the option mechanisms of the chosen model.
  • Rules for changes in participationTerms governing the admission of new participants, the exercise of rights, exit and the consequences of the arrival of an investor or a change of owner of the business.
  • Implementation and amendment documentsA set of documents for launching the programme and for administering, amending or terminating it.

The outcome of the service is the work performed within the scope agreed with the client.

04 / Projects
Selected Projects
01 / 06

Acting for the buyer

Acquisition of a group of companies in industrial equipment and digital solutions

Challenge

Advising the buyer on the acquisition of shares in a foreign company that owns a Russian manufacturer of industrial equipment and digital solutions for equipment management and monitoring, as well as shares in a Russian legal entity. The acquisition of the foreign company was governed by English law.

What was done

Comprehensive legal due diligence of the Russian business was carried out, covering its corporate history, contractual relationships and intellectual property rights. The foreign ownership structure, title to the shares being acquired and the legal aspects of the buyer's entry into the existing corporate structure were analysed separately. The structure and documents of the transaction were agreed, and the findings on the Russian and foreign parts were reflected in the terms of the transaction and the arrangements for its closing.

Acting for the sellers

Sale of four production assets in a single transaction

Challenge

Advising three sellers on the sale of four production assets of a building materials manufacturer to a single buyer. The assets were held in different ways – through interests in companies, as a property complex and through a mixed structure – and closing for all four assets had to take place simultaneously.

What was done

A single transaction structure was developed: some assets were transferred through the sale of participatory interests and others through transactions with the property complex. The parties and the contractual documentation were coordinated to take account of the different legal regimes for transferring the assets.

Option programme

Option programme for an investment fund linked to asset returns

Challenge

Advising on the design of an incentive programme for the managers of an investment fund and the executives of its portfolio companies (11 companies in the portfolio). The size of the economic participation had to be linked to the actual return on the assets, while retaining control over the terms on which key partners participate.

What was done

A multi-level model was developed: phantom participation in the value of the fund, with the possibility of moving to an equity interest in individual portfolio companies once set targets are met. The terms varied according to each participant's role and level of responsibility, and economic rights were tied to confirmed results.

Partnership arrangements

Structuring a partnership of three owners

Challenge

Advising on documenting the relationship between three partners with different stakes, ownership horizons and expectations regarding the management of the business. A model for decision-making and for changes in ownership was needed under which a significant divergence of interests would not lead to a corporate deadlock.

What was done

A multi-level system of mutual option mechanisms was developed, triggered by predefined circumstances, including changes in financial performance or in the ownership structure and the occurrence of a deadlock. A separate course of action for the partners was set out for each scenario.

Acting for the seller

Sale of an interest in a packaging manufacturer

Challenge

Advising the seller on the sale of an interest in a packaging manufacturer with net assets exceeding RUB 500 million. The seller was also the company's director, so the risk of claims relating to the management of the company being brought against the seller after the exit was taken into account.

What was done

The transaction was structured with possible claims after the transfer of the interest to the new owner in mind. Mechanisms were put in place to limit these risks and protect the seller's interests after closing.

Raising investment

Investment in a developer of treatment systems with a buy-back right

Challenge

Advising on raising investment for a growing company that develops treatment systems. The financing was provided directly to the company, with the investor acquiring an equity stake.

What was done

The transaction was structured with a right to buy back the investor's stake upon the occurrence of agreed conditions. This mechanism combined raising capital to develop the business with a predetermined scenario for changes in ownership.

05 / Questions
Frequently Asked Questions

A bonus is, as a rule, linked to performance over a specific period. An option programme is designed for a longer horizon and makes it possible to link a participant's economic interest to the development of the business and the fulfilment of the conditions set by the programme.

Yes. A phantom option provides for a cash equivalent without conferring the rights of a participant in the company. The economic return is determined by the terms of the programme and may depend on the value of an interest, of the company or on other agreed metrics.

Yes. The terms vary according to the participant's role, length of participation, assigned objectives, the size of their economic interest and other parameters; the overall structure of the programme remains consistent and manageable.

The consequences are determined by the terms of the programme: a participant's rights may terminate, be retained in full or in part, or be exercised on special terms. Such cases are provided for before the participant is admitted to the programme.

Yes. Changes are made in accordance with the procedure set out in the programme itself, taking into account the rights of participants already admitted to it.

First, the owner granting the interest, the size of the stake, the price or the method of calculating it and the conditions for exercising the right are determined. An option to enter into a contract makes it possible to accept an irrevocable offer; an option agreement gives the right to require the performance of the actions it provides for, such as the transfer of an interest. For the disposal of an interest, the notarial form and the special rules of the Law on Limited Liability Companies are taken into account.

An hourly rate, a fixed fee or a combined model is used; in some cases part of the fee depends on the outcome achieved. The fee is determined by the time actually spent, the complexity of the matter and the overall timeframe of the project, and is agreed before work begins.

Key Contacts
Deni Murdalov Deni Murdalov Partner, PhD (Law), LL.M.

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Buying and Selling a Business Joint Ventures (Partnerships) Legal Due Diligence Deal Structuring Cross-Border Transactions Venture Deals Documents and Consultations

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