The Stock Appreciation Rights Agreement is used by companies operating in Saudi Arabia to provide key employees with long-term incentive compensation tied to the company's value appreciation. This document becomes essential when organizations wish to offer equity-linked benefits without actual share transfers, making it particularly valuable for private companies or subsidiaries of international corporations. The agreement must comply with Saudi Arabian regulations, including the Companies Law, Capital Market Authority regulations, and Shariah principles. It typically includes detailed provisions on grant terms, vesting schedules, exercise procedures, valuation methodologies, and payment mechanisms. The document is structured to align with Saudi Arabia's Vision 2030 objectives of developing the private sector while ensuring proper corporate governance and employee retention through competitive compensation practices.
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1. Parties: Identification of the Company and the Employee/Participant receiving the SARs
2. Background: Context of the agreement, including reference to any employee incentive plan or board approval
3. Definitions: Key terms including Base Price, Fair Market Value, Exercise Date, Vesting Period, and other relevant terminology
4. Grant of SARs: Details of the SAR grant, including number of units and base price
5. Vesting Schedule: Timing and conditions for vesting of the SARs
6. Exercise of SARs: Process and conditions for exercising vested SARs
7. Calculation of Payment: Method for calculating the appreciation amount and payment mechanics
8. Term and Expiration: Duration of the SARs and expiration conditions
9. Termination of Employment: Impact of various types of employment termination on SARs
10. Compliance with Laws: Provisions ensuring compliance with Saudi regulations and Shariah principles
11. Tax Obligations: Treatment of tax/zakat implications and responsibilities
12. Confidentiality: Confidentiality obligations regarding the agreement terms
13. Governing Law and Jurisdiction: Specification of Saudi law as governing law and relevant courts
14. Entire Agreement: Integration clause and relationship to other documents
1. Change in Control: Provisions addressing the impact of company ownership changes, included for public companies or those considering public offering
2. Non-Competition and Non-Solicitation: Additional restrictive covenants, included when additional protection is needed
3. Currency Conversion: For international companies, provisions addressing currency conversion between SAR and other currencies
4. Administrative Committee: Establishment of a committee to oversee the SAR program, typically for larger companies
5. Electronic Notices: Provisions for electronic communications and exercises, for companies with digital systems
6. Shariah Compliance Declaration: Explicit confirmation of Shariah compliance, particularly for Islamic financial institutions
1. Grant Notice: Specific details of the SAR grant including number of units, base price, and vesting schedule
2. Calculation Methodology: Detailed methodology for calculating SAR value and appreciation
3. Exercise Form: Template form for exercising vested SARs
4. Shariah Compliance Certificate: If applicable, certification from Shariah board or advisor
5. Consent Forms: Required regulatory or administrative consent forms
6. Tax Treatment Summary: Summary of applicable tax/zakat treatment and calculations
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